SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 18, 1999

                                       OR

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

              FOR TRANSITION PERIOD FROM ___________ TO ___________

                           COMMISSION FILE NO. 1-14040

                       HOST MARRIOTT SERVICES CORPORATION
 ------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         DELAWARE                                       52-1938672
-------------------------------          ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 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)


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 (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No __

The total number of shares of common stock issued and outstanding as of July 23,
1999, was 33,525,690.

<PAGE>





               HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES


                                      INDEX

                                                                        PAGE NO.
PART I.           FINANCIAL INFORMATION (UNAUDITED):

                  Condensed Consolidated Statements of Operations -
                    For the Twelve Weeks Ended and Twenty-Four Weeks
                    Ended June 18, 1999 and June 19, 1998                     2

                  Condensed Consolidated Balance Sheets -
                    As of June 18, 1999 and January 1, 1999                   3

                  Condensed Consolidated Statements of Cash Flows -
                    For the Twenty-Four Weeks Ended June 18, 1999 and
                    June 19, 1998                                             4

                  Condensed Consolidated Statement of Shareholders'
                    Deficit - For the Twenty-Four Weeks Ended
                    June 18, 1999                                             5

                  Notes to Condensed Consolidated Financial Statements      6-7

                  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                    8-18

                  Quantitative and Qualitative Disclosure about
                    Market Risk                                              19

PART II.          OTHER INFORMATION AND SIGNATURE:

                  Legal Proceedings                                          20

                  Changes in Securities and Use of Proceeds                  20

                  Defaults Upon Senior Securities                            20

                  Submission of Matters to a Vote of Security Holders        20

                  Other Information                                          20

                  Exhibits and Reports on Form 8-K                           20

                  Signature                                                  21

                  Computations of Income Per Common Share                 22-23

                                       1

<PAGE>



HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      TWELVE WEEKS ENDED          TWENTY-FOUR WEEKS ENDED
                                                                 -------------------------------------------------------------
                                                                    JUNE 18,       JUNE 19,       JUNE 18,       JUNE 19,
                                                                      1999           1998           1999           1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>             <C>            <C>
REVENUES                                                                $350.0        $322.6          $658.9         $599.9
------------------------------------------------------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES
    Cost of sales                                                        100.9          94.7           191.2          177.2
    Payroll and benefits                                                 105.1          95.5           207.1          185.4
    Rent                                                                  53.1          49.9           100.9           94.3
    Royalties                                                              8.0           7.0            14.8           12.9
    Depreciation and amortization                                         15.7          13.5            30.8           25.5
    General and administrative                                            14.1          13.5            28.4           27.1
    Other                                                                 32.8          30.0            62.9           57.0
------------------------------------------------------------------------------------------------------------------------------

       Total operating costs and expenses                                329.7         304.1           636.1          579.4
------------------------------------------------------------------------------------------------------------------------------

OPERATING PROFIT                                                          20.3          18.5            22.8           20.5

    Interest expense                                                      (9.6)         (9.2)          (19.0)         (18.4)
    Interest income                                                        0.2           0.6             0.4            1.3
------------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE                                                   10.9           9.9             4.2            3.4

Provision for income taxes                                                 4.3           3.7             1.7            1.1
------------------------------------------------------------------------------------------------------------------------------

Income before cumulative effect of change in
   accounting principle                                                    6.6           6.2             2.5            2.3
Cumulative effect of change in accounting for start-up
   activities, net of tax benefit of $0.5 million                          ---           ---            (0.7)           ---
------------------------------------------------------------------------------------------------------------------------------

NET INCOME                                                               $ 6.6          $6.2           $ 1.8           $2.3
------------------------------------------------------------------------------------------------------------------------------

INCOME PER COMMON SHARE
Basic:
   Income before cumulative effect of change in
     accounting principle                                                $0.20         $0.18           $0.07          $0.07
   Cumulative effect of change in accounting for
     start-up activities                                                   ---           ---           (0.02)           ---
------------------------------------------------------------------------------------------------------------------------------

   Net income                                                            $0.20         $0.18           $0.05          $0.07
------------------------------------------------------------------------------------------------------------------------------
Diluted:
   Income before cumulative effect of change in
     accounting principle                                                $0.19         $0.17           $0.07          $0.06
   Cumulative effect of change in accounting for
     start-up activities                                                   ---           ---           (0.02)           ---
------------------------------------------------------------------------------------------------------------------------------

   Net income                                                            $0.19         $0.17           $0.05          $0.06
------------------------------------------------------------------------------------------------------------------------------

Weighted Average Common Shares Outstanding:
    Basic                                                                 33.6          34.0            33.7           34.2
    Diluted                                                               34.7          35.7            34.7           35.9
</TABLE>

            See notes to condensed consolidated financial statements.

                                      2

<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                    JUNE 18,           JANUARY 1,
                                                                                      1999                1999
-------------------------------------------------------------------------------- ---------------- -- ----------------
<S>                                                                                   <C>                   <C>
                                    ASSETS

Current assets:
   Cash and cash equivalents                                                           $  33.9              $  44.4
   Accounts receivable, net                                                               34.2                 28.9
   Inventories                                                                            41.4                 41.1
   Deferred income taxes                                                                  17.7                 17.4
   Prepaid rent                                                                            9.5                  7.4
   Other current assets                                                                   10.2                  7.9
-------------------------------------------------------------------------------- ---------------- -- ----------------

   Total current assets                                                                  146.9                147.1

Property and equipment, net                                                              339.1                314.2
Intangible assets                                                                         21.3                 22.1
Deferred income taxes                                                                     62.8                 62.2
Other assets                                                                              20.8                 21.4
-------------------------------------------------------------------------------- ------------------ ----------------
   Total assets                                                                        $ 590.9              $ 567.0
-------------------------------------------------------------------------------- ---------------- -- ----------------


                     LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                                    $  87.2              $  79.7
   Accrued payroll and benefits                                                           41.7                 44.5
   Accrued interest payable                                                                3.4                  4.8
   Current portion of long-term debt                                                       1.2                  1.1
   Borrowings under line-of-credit agreement                                              27.7                 11.6
   Other current liabilities                                                              40.6                 40.4
-------------------------------------------------------------------------------- ---------------- -- ----------------

   Total current liabilities                                                             201.8                182.1

Long-term debt                                                                           406.0                405.9
Other liabilities                                                                         55.9                 51.6
-------------------------------------------------------------------------------- ---------------- -- ----------------

   Total liabilities                                                                     663.7                639.6

Common stock, no par value,  100 million shares  authorized,
   35,930,162  shares issued as of June 18, 1999 and
   35,739,180 shares issued as of January 1, 1999                                          ---                  ---
Contributed deficit                                                                     (105.8)              (105.8)
Retained earnings                                                                         61.0                 59.2
Accumulated other comprehensive income                                                     ---                  0.1
Treasury stock - 2,360,510 shares at June 18, 1999
   and 2,104,110 shares at January 1, 1999                                               (28.0)               (26.1)
-------------------------------------------------------------------------------- ---------------- -- ----------------
   Total shareholders' deficit                                                           (72.8)               (72.6)
-------------------------------------------------------------------------------- ---------------- -- ----------------
   Total liabilities and shareholders' deficit                                         $ 590.9              $ 567.0
-------------------------------------------------------------------------------- ---------------- -- ----------------
</TABLE>

            See notes to condensed consolidated financial statements.

                                       3

<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
                                                                                       TWENTY-FOUR WEEKS ENDED
                                                                                 -------------------------------------
                                                                                    JUNE 18,            JUNE 19,
                                                                                      1999                1998
-------------------------------------------------------------------------------- ---------------- -- -----------------
<S>                                                                                     <C>                   <C>
OPERATING ACTIVITIES
   Net income                                                                            $ 1.8                $ 2.3
   Cumulative effect of change in accounting principle, net of taxes                       0.7                  ---
-------------------------------------------------------------------------------- ---------------- -- -----------------

   Net income before cumulative effect of change in accounting principle                   2.5                  2.3

   Adjustments to reconcile net income to cash from operations:
     Depreciation and amortization                                                        31.5                 26.5
     Amortization of deferred financing costs                                              0.6                  0.6
     Deferred income taxes                                                                (0.9)                (1.1)
     Other                                                                                 0.2                  3.5
     Working capital changes:
       Increase in accounts receivable                                                    (2.0)                (1.8)
       Increase in inventories                                                            (0.7)                (1.4)
       Increase in other current assets                                                   (5.1)                (2.7)
       Increase in accounts payable and accruals                                           3.1                  0.3
-------------------------------------------------------------------------------- ---------------- -- -----------------

   Cash provided by operations                                                            29.2                 26.2

INVESTING ACTIVITIES
   Capital expenditures                                                                  (57.7)               (34.9)
   Other, net                                                                              4.5                 (3.6)
-------------------------------------------------------------------------------- ---------------- -- -----------------

   Cash used in investing activities                                                     (53.2)               (38.5)

FINANCING ACTIVITIES
   Repayments of long-term debt                                                           (0.6)                (0.6)
   Issuance of long-term debt                                                              ---                  0.9
   Net borrowings under line-of-credit agreement                                          16.1                  ---
   Proceeds from stock issuances                                                           1.7                  2.3
   Payment to Host Marriott Corporation for Marriott International
       options and deferred shares                                                        (1.7)                (3.5)
   Purchases of treasury stock                                                            (1.9)               (11.4)
   Other                                                                                  (0.1)                (0.1)
-------------------------------------------------------------------------------- ---------------- -- -----------------

   Cash provided by (used in) financing activities                                        13.5                (12.4)

DECREASE IN CASH AND CASH EQUIVALENTS                                                    (10.5)               (24.7)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            44.4                 78.1
-------------------------------------------------------------------------------- ---------------- -- -----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                $ 33.9               $ 53.4
-------------------------------------------------------------------------------- ---------------- -- -----------------
</TABLE>



            See notes to condensed consolidated financial statements.

                                       4

<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT (UNAUDITED)
TWENTY-FOUR WEEKS ENDED JUNE 18, 1999
(IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                    ACCUMULATED
     COMMON                                                                            OTHER
     SHARES                                             CONTRIBUTED    RETAINED    COMPREHENSIVE    TREASURY
  OUTSTANDING                                             DEFICIT      EARNINGS       INCOME         STOCK        TOTAL
----------------- ------------------------------------ -------------- ----------- ---------------- ----------- ------------
<C>               <S>                                      <C>           <C>              <C>       <C>           <C>
           33.6   Balance, January 1, 1999                 $(105.8)      $59.2            $ 0.1     $ (26.1)      $(72.6)
----------------- ------------------------------------ -------------- ----------- ---------------- ----------- ------------

                    Comprehensive income:
            ---        Net income                              ---         1.8              ---         ---          1.8
                       Foreign currency translation
            ---         adjustments                            ---         ---             (0.1)        ---         (0.1)
----------------- -------------------------------------- ------------ ----------- ---------------- ----------- ------------

            ---     Total comprehensive income                 ---         1.8             (0.1)        ---          1.7

                    Common stock issued for
            0.2        employee stock and option plans         1.7         ---              ---         ---          1.7
                    Payment to Host Marriott
                       Corporation for Marriott
                       International options
            ---        and deferred shares                    (1.7)        ---              ---         ---         (1.7)
           (0.2)    Treasury stock purchases                   ---         ---              ---        (1.9)        (1.9)
----------------- -------------------------------------- ----------------------- ---------------- ----------- ------------

           33.6   BALANCE, JUNE 18, 1999                   $(105.8)    $  61.0          $   ---     $ (28.0)     $ (72.8)
----------------- -------------------------------------- ------------ ----------- ---------------- ----------- ------------
</TABLE>

            See notes to condensed consolidated financial statements.


                                       5


<PAGE>

HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   The  accompanying  condensed  consolidated  financial  statements  of  Host
     Marriott  Services  Corporation and subsidiaries  (the "Company") have been
     prepared  without  audit.  Certain  information  and  footnote  disclosures
     normally  included in financial  statements  presented in  accordance  with
     generally  accepted  accounting  principles have been condensed or omitted.
     The  Company  believes  the  disclosures  made  are  adequate  to make  the
     information presented not misleading.  However, the condensed  consolidated
     financial  statements  should be read in conjunction  with the consolidated
     financial  statements  and notes thereto  included in the Company's  Annual
     Report  on Form 10-K for the  fiscal  year  ended  January  1, 1999  ("Form
     10-K").  Capitalized  terms not otherwise  defined herein have the meanings
     specified in the Form 10-K.

     In the  opinion  of  the  Company,  the  accompanying  unaudited  condensed
     consolidated  financial  statements  reflect all adjustments (which include
     only  normal  recurring   adjustments)  necessary  to  present  fairly  the
     consolidated  financial position of the Company as of June 18, 1999 and the
     results of  operations  and cash flows for the interim  periods  presented.
     Interim results are not necessarily  indicative of fiscal year  performance
     because of the impact of seasonal and short-term variations.

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

2.   Basic  income per common  share was  computed by dividing net income by the
     weighted-average  number of outstanding  common shares.  Diluted income per
     share was computed by dividing  net income by the diluted  weighted-average
     number of outstanding common shares.

3.   Restricted  shares are  awarded to certain key  executives.  As of June 18,
     1999,  there were 823,000  restricted  share awards  outstanding,  of which
     approximately 751,000 were restricted shares issued in 1998 and 72,000 were
     shares  issued  in prior  years and will be  released  upon  retirement  of
     certain executives.

     Compensation expense related to the 751,000 shares awarded in 1998 consists
     of  256,000  shares in an annual  time-based  component  as well as 495,000
     shares in a performance-based  component.  Compensation  expense under both
     components is calculated  using the fair value of the shares on the date of
     issuance and is  contingent  on  continued  employment.  The  vesting,  and
     corresponding  compensation expense, of the 256,000 shares under the annual
     time-based  component occurs ratably over a three-year  period beginning on
     the grant date. The vesting, and corresponding compensation expense, of the
     495,000  shares under the  performance-based  component can be  accelerated
     from a maximum  seven-year  period to a  minimum  three-year  period by the
     attainment of certain performance  criteria as the average stock price must
     meet or exceed the 75th percentile total shareholder returns of the Russell
     2000 index during fiscal years 2001 through 2005.

     Restricted  share awards  outstanding  from prior grants totaled 256,000 at
     the end of fiscal  year  1998.  During the first  quarter of 1999,  131,000
     shares were released, 53,000 shares were forfeited and the remaining 72,000
     shares will be released upon retirement of certain executives.

4.   During the first quarter of 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 $0.1  million in the
     second  quarter and $0.2 million in the first half of 1999 that  previously
     would have been expensed.  The adoption of SOP 98-5 in the first quarter of
     1999 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. 130, "Reporting  Comprehensive
     Income," during 1998 and the adoption did not have a material effect on the
     Company's 1998 consolidated financial statements.


                                       6


<PAGE>


HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


5.   In the first half of 1999, the Company  incurred a capital lease obligation
     when it entered into a lease for new equipment totaling $0.7 million.

6.   The Company's  management  evaluates the  performance  of each of its three
     operating   segments  based  on  profit  or  loss  from  operations  before
     allocation of general and administrative expenses,  interest,  income taxes
     and cumulative effects of changes in accounting principles.  The accounting
     policies of the segments are the same as those  described in the summary of
     significant  accounting  policies  in the  Company's  Form 10-K.  Financial
     information for the Company's  three business  segments are provided in the
     following tables.

<TABLE>
<CAPTION>
                                                    TWELVE WEEKS ENDED         TWENTY-FOUR WEEKS ENDED
                                                ---------------------------  -----------------------------
                                                  JUNE 18,      JUNE 19,       JUNE 18,        JUNE 19,
                (IN MILLIONS)                       1999          1998           1999            1998
                ------------------------------------------------------------------------------------------
                <S>                                  <C>           <C>             <C>           <C>

                REVENUES:
                  Airports                          $ 263.6       $ 242.7         $ 509.9        $ 460.2
                  Travel plazas                        80.1          75.5           137.6          130.7
                  Shopping malls                        6.3           4.4            11.4            9.0
                ------------------------------------------------------------------------------------------
                Total segment revenues              $ 350.0       $ 322.6         $ 658.9        $ 599.9
                ------------------------------------------------------------------------------------------

                OPERATING PROFIT (LOSS):(1)
                  Airports                          $  26.9       $  26.7         $  47.1        $  46.2
                  Travel plazas                         7.9           5.8             5.2            2.1
                  Shopping malls                       (0.4)         (0.5)           (1.1)          (0.7)
                ------------------------------------------------------------------------------------------
                Total segment operating profit      $  34.4       $  32.0         $  51.2        $  47.6
                ------------------------------------------------------------------------------------------
<FN>
                (1)   Before general and administrative expenses.
</FN>
</TABLE>



<TABLE>
<CAPTION>
                                                                         JUNE 18,          JANUARY 1,
                (IN MILLIONS)                                               1999               1999
                ----------------------------------------------------------------------------------------------
               <S>                                                           <C>                 <C>

                ASSETS:
                  Airports                                                     $ 368.1            $ 347.2
                  Travel plazas                                                   79.3               85.2
                  Shopping malls                                                  15.0               12.8
                ----------------------------------------------------------------------------------------------
                Total segment assets                                           $ 462.4            $ 445.2
                ----------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                                          TWELVE WEEKS ENDED           TWENTY-FOUR WEEKS ENDED
                                                       --------------------------   ------------------------------
                                                        JUNE 18,      JUNE 19,       JUNE 18,        JUNE 19,
                (IN MILLIONS)                             1999          1998           1999            1998
                ------------------------------------------------------------------------------------------------
                <S>                                       <C>            <C>           <C>              <C>

                OPERATING PROFIT:
                  Segments                                $ 34.4         $ 32.0         $ 51.2          $ 47.6
                  General and administrative expenses      (14.1)         (13.5)         (28.4)          (27.1)
                ------------------------------------------------------------------------------------------------
                Total operating profit                    $ 20.3         $ 18.5         $ 22.8          $ 20.5
                ------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                           JUNE 18,          JANUARY 1,
                (IN MILLIONS)                                                1999               1999
                -------------------------------------------------------------------------------------------
                 <S>                                                          <C>                  <C>

                ASSETS:
                  Segments                                                       $ 462.4           $ 445.2
                  Corporate and other                                              128.5             121.8
                -------------------------------------------------------------------------------------------
                Total assets                                                     $ 590.9           $ 567.0
                -------------------------------------------------------------------------------------------
</TABLE>

 The Company's largest branded concept,  Burger King, accounted for 10.4% of
 total revenues in the second quarter and 10.1% of total revenues in the first
 half of 1999.


                                       7

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS


RECENT EVENTS

Subsequent to the end of the second  quarter of 1999, an  announcement  was made
that a  definitive  agreement  had been  approved by the Board of  Directors  of
Autogrill SpA  ("Autogrill")  to acquire all of the outstanding  common stock of
the  Company.  The  transaction  has been  unanimously  approved by the Board of
Directors  of  the  Company,   which  will  recommend  the  transaction  to  its
shareholders,  and remains subject to receipt of customary regulatory approvals.
Under the terms of the agreement, the Company's shareholders will receive $15.75
per share in cash from  Autogrill  in a tender  offer  expected  to  commence on
August 2, 1999. The tender will remain open for a period of 20 business days and
is subject to acceptance by at least  two-thirds of the Company's  shareholders.
This acquisition will create the leading global operator of commercial  catering
for travelers with operations in North America,  Europe, Australia and Asia with
annual sales of over $2.6 billion based on 1998 results.

RESULTS OF OPERATIONS

REVENUES.  Revenues  for the  twelve  weeks  ("quarter")  ended  June  18,  1999
increased by 8.5% to $350.0  million  from the same period in 1998,  with strong
revenue growth in all business lines. Revenues for the twenty-four weeks ("first
half")  ended June 18, 1999 totaled  $658.9  million,  an increase of 9.8%.  The
increase in revenues was driven by strong  performance  in  comparable  domestic
airport concession operations, the conversion of the Miami International Airport
contract  from a management  agreement  to an operating  agreement in the second
quarter of 1998,  solid growth in tollroad  operations  and the opening of three
new mall food courts in the last nine months.

<TABLE>
<CAPTION>
                                             TWELVE WEEKS ENDED                   TWENTY-FOUR WEEKS ENDED
                                    -------------------------------------------------------------------------------
                                      JUNE 18,     JUNE 19,                  JUNE 18,      JUNE 19,
  (IN MILLIONS)                         1999         1998       CHANGE         1999          1998        CHANGE
  -----------------------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>           <C>           <C>         <C>

  REVENUES BY BUSINESS LINE
      AIRPORTS:
         Domestic                         $234.6      $215.8        8.7%         $454.5        $409.5       11.0%
         International                      17.3        15.5       11.6            33.8          29.5       14.6
         Off-airports                       11.7        11.4        2.6            21.6          21.2        1.9
  -----------------------------------------------------------------------------------------------------------------
            Total airports                 263.6       242.7        8.6           509.9         460.2       10.8
  -----------------------------------------------------------------------------------------------------------------
      TRAVEL PLAZAS                         80.1        75.5        6.1           137.6         130.7        5.3
      SHOPPING MALLS                         6.3         4.4       43.2            11.4           9.0       26.7
  -----------------------------------------------------------------------------------------------------------------
      Total revenues                      $350.0      $322.6        8.5%         $658.9        $599.9        9.8%
  -----------------------------------------------------------------------------------------------------------------
</TABLE>

The Company's diversified branded concept portfolio,  which consists of over 100
franchised,  licensed or internally  developed brands,  is a unique  competitive
advantage in the marketplace. Brand awareness, customer familiarity with product
offerings,  and the perception of superior value and consistency are all factors
contributing  to higher  revenue  per  enplaned  passenger  ("RPE")  in  branded
facilities.  Branded revenues in all of the Company's venues increased 14.0% and
13.8% for the second quarter and first half of 1999, respectively, compared to a
year ago. Branded  revenues  accounted for $152.9 million of the Company's total
revenues for the second quarter of 1999 and $279.2 million for the first half of
1999.  The  majority  of  the  increases  relate  to  the  Company's   continued
transformation of airport  locations from generic  offerings to  internationally
known brands and unique local concepts.  Branded concept  revenues in all of the
Company's  venues  have grown at a compound  annual  growth  rate of 13.2% since
1996. The Company's  exposure to any one brand is limited given the diversity of
brands that are offered. The Company's largest branded concept,  Burger King, is
an  international  favorite  among  consumers  and  accounted for 10.4% of total
revenues in the second  quarter of 1999 and 10.1% of total revenues in the first
half of 1999.


                                       8

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED



AIRPORTS
Airport  segment  revenues were up 8.6% to $263.6 million for the second quarter
and up 10.8% to $509.9  million for the first half of 1999  compared to the same
periods of 1998. The majority of the increases for the quarter and first half of
1999  resulted from strong  growth in both  domestic and  international  airport
concessions and slight growth in off-airport concessions.

Comparable domestic airport concession revenues grew 8.4% for the second quarter
of 1999 compared to the second quarter of 1998, from an estimated 1.5% growth in
domestic  passenger  enplanements  and 6.9% growth in RPE.  Comparable  domestic
airport concession  revenues were up 9.0% for the first half of 1999 compared to
a year ago, driven by 1.9% growth in domestic  passenger  enplanements  and 7.1%
growth  in  RPE.  The  passenger  enplanement  growth  is  estimated  by the Air
Transport  Association  whose member  airlines  represent  95% of all  passenger
traffic in the United  States.  RPE is the primary  measure of how effective the
Company is at capturing  potential  customers and increasing  customer spending.
Moderate  increases in menu prices,  increased  revenues from recently renovated
facilities  in the Las Vegas,  Minneapolis,  Tampa and  Charlotte  airports  and
various real estate maximization efforts contributed to the growth in RPE.

International  airport  revenues  were up 11.6% to $17.3  million for the second
quarter and up 14.6% to $33.8 million for the first half of 1999 compared to the
same  periods  in 1998.  Revenues  benefited  from  new  contracts  at  Shenzhen
Huangtian  International  Airport and Kuala Lumpur International Airport as well
as the addition of new concepts  and overall  enplanement  increases at Schiphol
Airport in the Netherlands.

Off-airport  revenues  increased  2.6% to $11.7 million in the second quarter of
1999 and  increased  1.9% to $21.6 million in the first half of 1999 compared to
the same periods in 1998. The closing of three off-airport  locations offset the
solid  performance  of two tourist  attraction  locations and one  entertainment
location in the second quarter of 1999.

Subsequent  to the end of the second  quarter of 1999,  the Company  announced a
seven-year  extension at the Salt Lake City International  Airport.  The Company
plans to develop and redesign new concession space and refurbish  existing space
by mid-2000.

TRAVEL PLAZAS
Travel plaza  concession  revenues  were up 6.1% to $80.1 million for the second
quarter and up 5.3% to $137.6  million for the first half of 1999 when  compared
to the same periods in 1998. The Company's solid growth  quarter-to-quarter  and
year-to-year  on all of its major  tollroads was due to increased  traffic,  the
introduction of new branded concepts, menu price increases and the benefits from
several competitor plazas closed for construction on one tollroad.

In the first half of 1999,  the Company won a five-year  contract  for two newly
built travel plazas on the Ohio Turnpike  with expected  annualized  revenues of
$8.0 million. The Company's four existing locations on the turnpike are expected
to be closed for  renovation  by the  Authority in late 1999 and re-bid in early
2000.

Subsequent  to the end of the second  quarter of 1999,  the Company  announced a
memorandum of understanding with the New Jersey Turnpike Authority for a 15-year
extension on the New Jersey Turnpike to 2018. The Company's current contract was
scheduled  to expire in 2003.  In total,  $41  million  will be  invested in the
project,  of which the  Company  is  funding  $25  million,  with the New Jersey
Turnpike Authority funding the remainder.  Construction is scheduled to begin in
the Fall of 1999, with completion scheduled in mid-2002. During the 2.5 years of
construction,  the Company will  renovate  the travel  plazas in three phases to
create minimal disruption to customers.  When the travel plazas are completed in
2002, revenues are expected to increase to approximately $75 million.

                                       9

<PAGE>
HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED


SHOPPING MALLS
Shopping  mall  concession  revenues  increased by 43.2% to $6.3 million for the
second  quarter and  increased  by 26.7% to $11.4  million for the first half of
1999 when compared with the same periods in 1998, despite seasonally low traffic
periods.  The increases can be attributed to the opening of the MacArthur Center
Mall in the first  quarter of 1999 and 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 increased
by 2.3% for the second  quarter  and  decreased  4.4% for the first half of 1999
compared to the same periods in 1998.

OPERATING  COSTS AND EXPENSES.  The Company's total operating costs and expenses
were $329.7 million for the second quarter of 1999, or 94.2% of total  revenues,
compared with $304.1  million for the second  quarter of 1998, or 94.3% of total
revenues.  Total  operating  costs and  expenses for the first half of 1999 were
$636.1  million,  or 96.5% of total revenues,  compared with $579.4 million,  or
96.6%  of  total  revenues  for the  first  half of  1998.  The 10  basis  point
improvement  in the  operating  profit margin on both a  quarter-to-quarter  and
year-to-year basis reflects  improvements in the cost of sales, rent and general
and administrative expense margins,  offset by higher payroll,  depreciation and
royalty expense margins. The improved operating profit margin reflects operating
leverage  benefits  derived from revenue  growth,  price  increases  and reduced
operating expenses. The reduction in operating expenses was due, in part, to the
initiation,  trial and  utilization of loss  prevention  programs and the use of
internally  created  programs to  effectively  manage and monitor the  Company's
labor force.

Cost of sales  increased  6.5% to $100.9  million  for the  second  quarter  and
increased 7.9% to $191.2 million for the first half of 1999 compared to the same
periods in 1998.  The cost of sales margin has been on a downward trend over the
past  two  years - from  29.2%  in 1997 to  28.8%  in  1999.  Cost of sales as a
percentage  of total  revenues  improved 50 basis points  during both the second
quarter  and first half of 1999.  This  improvement  has been driven by food and
beverage  locations  and reflects the impact of pricing and the  utilization  of
loss prevention programs in 1999.

Payroll and benefits  totaled  $105.1  million and $207.1 million for the second
quarter and first half of 1999, a 10.1% increase over the second quarter of 1998
and an 11.7%  increase  over the first half of 1998.  Payroll and  benefits as a
percentage of total  revenues  increased 40 basis points to 30.0% for the second
quarter  and  increased  50 basis  points to 31.4%  for the  first  half of 1999
compared  to the  comparable  periods in 1998.  The  increases  in  payroll  and
benefits margins for the second quarter and first half of 1999 were driven by an
increase in payroll costs due to tight labor markets.  The Company is addressing
the tight labor markets with increased  emphasis on recruitment and retention as
well as with training in and more consistent use of technology previously put in
place for labor productivity and scheduling.

Rent expense  totaled $53.1 million for the second  quarter of 1999, an increase
of 6.4% above the  comparable  period in 1998.  Rent expense  increased  7.0% to
$100.9 million in the first half of 1999 compared to a year ago. As a percentage
of total revenues,  rent expense improved 30 basis points for the second quarter
and 40 basis  points for the first half of 1999 and can be  attributed  to sales
increases on contracts with fixed rental rates and new or renewed contracts with
favorable rent margins.

Royalties  expense  increased  by 14.3% to $8.0  million for the second  quarter
compared to a year ago and  increased  14.7% to $14.8 million for the first half
of 1999 compared to the same periods in 1998. As a percentage of total revenues,
royalties  expense  increased by 10 basis points for both the second quarter and
first half of 1999.  The increases in royalties  expense  reflects the Company's
continued  introduction of branded concepts to its airport concession operations
and the continued  expansion into the heavily  branded  shopping mall food court
concession business. Royalties expense as a percentage of branded sales averaged
5.9% and 6.1% in the second quarter of 1999 and 1998, respectively,  and totaled
5.9% and 6.1% for the first  half of 1999 and  1998,  respectively.  The  margin
improvements  can be  attributed  to  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.

                                       10

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED



Depreciation  and  amortization  expense,  excluding  $0.4  million of corporate
depreciation  on property  and  equipment,  which is included as a component  of
general and administrative expenses, was $15.7 million for the second quarter of
1999,   compared  to  $13.5   million,   excluding  $0.5  million  of  corporate
depreciation  on  property  and  equipment,  for the  second  quarter  of  1998.
Depreciation  and amortization for the first half of 1999 and 1998 totaled $30.8
million and $25.5 million,  excluding $0.7 million and $1.0 million of corporate
depreciation  on  property  and  equipment,  respectively.  The 30  basis  point
increase  for the second  quarter and the 40 basis point  increase for the first
half of 1999 in the depreciation and amortization expense margins are attributed
to the increased  level of capital  investments to win new contracts,  to extend
existing contracts and to introduce branded facilities.


General and administrative expenses were $14.1 million for the second quarter of
1999, an increase of 4.4% from a year ago. General and  administrative  expenses
for the first half of 1999 increased 4.8% to $28.4 million compared to the first
half of  1998.  These  increases  were  primarily  attributable  to  incremental
external Year 2000 costs of $0.6 million in the second  quarter and $1.4 million
in the first half of 1999 compared to a year ago. The general and administrative
expense margin,  which reflects leverage benefits from revenue growth,  improved
20 basis  points for both the second  quarter and the first half of 1999 despite
the  increases in Year 2000 costs.  Excluding  Year 2000 costs,  the general and
administrative expense margin would have improved 30 basis points for the second
quarter  and 50 basis  points  for the first half of 1999  compared  to the same
periods in 1998.

Other operating expenses, which include utilities, casualty insurance, equipment
maintenance,  trash removal and other miscellaneous expenses,  increased 9.3% to
$32.8 million for the second quarter of 1999 when compared to the second quarter
of 1998. Other operating  expenses  increased 10.4% in the first half of 1999 to
$62.9 million  compared to a year ago. As a percentage of total revenues,  other
operating  expenses increased 10 basis points for the second quarter of 1999 and
remained unchanged for the first half of 1999 compared to a year ago.

OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above,  operating profit increased to $20.3 million,  or 5.8%
of  revenues,  for the second  quarter of 1999 from  $18.5  million,  or 5.7% of
revenues,  for the second quarter of 1998.  Operating  profit  improved 11.2% to
$22.8  million for the first half of 1999,  or 3.5% of revenues,  compared  with
$20.5 million, or 3.4% of revenues,  for the same period in 1998. Excluding $0.8
million  of Year 2000 costs in the  second  quarter of 1999 and $0.2  million of
Year 2000  costs in the  second  quarter of 1998,  operating  profit  would have
increased by 12.8% to $21.1 million in the second  quarter of 1999 when compared
to the second quarter of 1998.  Excluding $1.8 million of Year 2000 costs in the
first  half of 1999 and $0.4  million  of Year 2000  costs in the first  half of
1998, operating profit would have increased by 18.3% to $24.6 million.

<TABLE>
<CAPTION>
                                                                 TWELVE WEEKS ENDED       TWENTY-FOUR WEEKS ENDED
                                                             --------------------------------------------------------
                                                               JUNE 18,      JUNE 19,      JUNE 18,      JUNE 19,
   (IN MILLIONS)                                                 1999          1998          1999          1998
   ------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>            <C>          <C>

   OPERATING PROFIT (LOSS) BY BUSINESS LINE (1)
       AIRPORTS:
          Domestic                                                $ 24.8        $ 24.5         $ 43.8       $ 43.0
          International                                              0.6           0.9            1.2          1.1
          Off-airports                                               1.5           1.3            2.1          2.1
   ------------------------------------------------------------------------------------------------------------------
             Total airports                                         26.9          26.7           47.1         46.2
   ------------------------------------------------------------------------------------------------------------------
       TRAVEL PLAZAS                                                 7.9           5.8            5.2          2.1
       SHOPPING MALLS                                               (0.4)         (0.5)          (1.1)        (0.7)
   ------------------------------------------------------------------------------------------------------------------

       Total operating profit                                     $ 34.4        $ 32.0         $ 51.2       $ 47.6
   ------------------------------------------------------------------------------------------------------------------
<FN>

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

                                       11

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED


The airport segment operating profit margin,  before general and  administrative
expenses,  declined  to 10.2% and 9.2% for the second  quarter and first half of
1999, respectively,  compared to 11.0% and 10.0% in the same periods a year ago.
The decline in the airport segment  operating profit margins  primarily  reflect
increased   depreciation   (in  seasonally  low  periods)   related  to  capital
investments, higher payroll cost margins due to tight labor markets and start-up
inefficiencies at new  international  locations offset by improved cost of sales
margins.  For the entire fiscal year of 1999, the Company is forecasting  higher
airport operating profit margins.

The  travel  plaza  segment   operating   profit  margin,   before  general  and
administrative  expenses,  improved significantly to 9.9% for the second quarter
of 1999 compared to 7.7% in the second quarter of 1998. The margin for the first
half of 1999  increased  to 3.8% for the first half of 1999  compared to 1.6% in
the first half of 1998.  These  increases  reflect solid revenue  growth coupled
with active management of operating costs.

The operating loss margin for the shopping mall segment,  excluding  general and
administrative  expenses,  improved  to 6.3% for the second  quarter of 1999 and
declined to 9.6% for the first half of 1999. The shopping mall segment  reflects
seasonally  low traffic and continues to be affected by start-up  inefficiencies
of new malls. On a comparable  basis, the shopping mall operating profit margins
increased from negatives in 1998 to a positive 4.5% for the second quarter and a
positive 1.2% for the first half of 1999.

INTEREST EXPENSE. Interest expense increased 4.3% to $9.6 million for the second
quarter and increased  3.3% to $19.0 million for the first half of 1999 compared
to the same periods in 1998. The  quarter-to-quarter  and year-to-year increases
reflect  additional  interest  incurred on borrowings under the revolving credit
facility to fund capital expenditures and share repurchases.

INTEREST  INCOME.  Interest  income  decreased  to $0.2  million  for the second
quarter of 1999  compared  to $0.6  million  for the second  quarter of 1998 and
decreased  to $0.4  million for the first half of 1999  compared to $1.3 million
for the first half of 1998. The decreases reflect lower cash balances during the
second  quarter  and first half of 1999  compared to the  comparable  periods in
1998.

INCOME TAXES.  The provision for income taxes for the second quarter of 1999 was
$4.3 million compared to $3.7 million in the second quarter of 1998,  reflecting
an effective tax rate of 39.5% and 37.4%, respectively. The provision for income
taxes for the first  half of 1999 and 1998 was $1.7  million  and $1.1  million,
respectively,  reflecting  effective tax rates of 39.5% and 33.0%. The effective
tax rates  for 1998 were  reduced  to  reflect  the  reversal  of the  valuation
allowance  for  the  estimated  benefit  of  recognizing   certain  tax  credits
previously thought to be unrealizable.

CUMULATIVE  EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE.  The Company  adopted SOP
98-5 during the first  quarter of 1999 that  resulted  in a one-time,  after-tax
write-off of deferred  pre-opening  costs  totaling  $0.7  million.  The new SOP
requires pre-opening costs to be expensed as incurred in 1999 and beyond.

NET INCOME AND INCOME PER COMMON SHARE.  The Company's net income for the second
quarter of 1999  increased to $6.6  million,  or $0.19 per diluted  common share
compared to $6.2  million,  or $0.17 per  diluted  common  share,  in the second
quarter of 1998.  Excluding  Year 2000  costs in the second  quarter of 1999 and
1998, diluted income per common share would have improved by 16%.

Net income before the change in accounting  principle  increased to $2.5 million
for the first half of 1999, or $0.07 per diluted common share,  compared to $2.3
million,  or $0.06 per  diluted  common  share,  in the first half of 1998.  Net
income after the change in accounting  principle  decreased to $1.8 million,  or
$0.05 per diluted common share,  compared to $2.3 million,  or $0.06 per diluted
common share, in the first half of 1998.

WEIGHTED-AVERAGE  SHARES  OUTSTANDING.  The  weighted-average  number  of common
shares  outstanding  for the second  quarter of 1999 and 1998 used to  calculate
basic income per common share was 33.6 million and 34.0

                                       12

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED



million,  respectively. The weighted-average number of common shares outstanding
for the first half of 1999 and 1998 used to  calculate  basic  income per common
share was 33.7 million and 34.2 million, respectively.

The weighted-average  number of common shares outstanding for the second quarter
of 1999 and 1998 used to  calculate  diluted  income per  common  share was 34.7
million and 35.7 million,  respectively.  The weighted-average  number of common
shares outstanding for the first half of 1999 and 1998 used to calculate diluted
income per common share was 34.7 million and 35.9 million, respectively.

As of the end of both the first  half of 1999 and year end 1998,  common  shares
issued and outstanding  totaled 33.6 million.  Shares issued under the Company's
employee  stock and  option  plans  were  offset by shares  purchased  under the
Company's share repurchase program.


LIQUIDITY AND CAPITAL RESOURCES

Historically,   the  Company  has  funded  its  ongoing  capital   expenditures,
debt-service  requirements and treasury  purchases from cash flow generated from
ongoing  operations  and current cash  balances.  The Company has more  recently
drawn on existing credit facilities to fund increased  capital  spending.  Given
the  Company's  expected  capital  requirements  in 1999 and 2000,  the  current
favorable  interest  rate  environment,  the  benefits  of  increased  financial
flexibility  for  capital  investment  targets  and the  Company's  interest  in
repurchasing  shares,  the Company proceeded with a debt refinancing plan in the
second quarter of 1999, including a cash tender offer for its Senior Notes.

Subsequent to the end of the second quarter of 1999,  the Company  announced the
launch of the cash tender offer and consent  solicitation  for its Senior Notes.
The tender offer and consent  solicitation  for the Senior Notes were terminated
as a result of the proposed acquisition of the Company by Autogrill. At the time
of  termination,  $383.4  million had been  tendered  representing  95.9% of the
outstanding Senior Notes.

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
would  have had to pay a premium  in  addition  to the call  price of 103.56% in
order to complete the tender for the notes prior to May 2000.

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  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 Host
International,  Inc. ("Host  International").  Host International is the primary
operating  subsidiary  of the  Company.  The  Senior  Notes  Indenture  contains
covenants that, among other things,  limit the ability of Host International 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.

The  First  National  Bank of  Chicago,  as agent  for a group of  participating
lenders,  has provided credit facilities  ("Facilities")  to Host  International
consisting  of a $75.0  million  revolving  credit  facility and a $25.0 million
letter of credit facility.  The revolving  credit facility  provides for working
capital  and can be used for  general  corporate

                                       13

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED



purposes  other than hostile  acquisitions.  At the end of the second quarter of
1999, the Company had drawn $27.7 million of outstanding  indebtedness under the
revolving  credit facility at an average  interest rate of 6.64%. All borrowings
under the  Facilities  are  senior  obligations  of Host  International  and are
secured by the Company's pledge of, and first perfected  interest in, all of the
capital stock of Host International and certain of its subsidiaries.

The loan  agreements  relating  to the  Facilities  contain  dividend  and stock
retirement  covenants that are  substantially  similar to those set forth in the
Senior Notes  Indenture,  and provide that dividends  payable to the Company are
limited to 25% of Host  International's  consolidated net income,  as defined in
the loan agreements. In compliance with the Facilities,  Host International paid
$6.5 million of dividends to the Company in the second  quarter of 1999 and $4.7
million of  dividends in the first  quarter of 1998.  The loan  agreements  also
contain  certain  financial  ratio  and  capital  expenditure   covenants.   Any
indebtedness  outstanding  under the  Facilities may be declared due and payable
upon the  occurrence  of certain  events of  default,  including  the  Company's
failure to comply with the several  covenants  noted above, a change in control,
or the occurrence of certain events of default under the Senior Notes Indenture.
As of June 18, 1999 and throughout the twelve weeks and twenty-four  weeks ended
June 18, 1999, the Company was in compliance with the covenants described above.
If the Autogrill acquisition of the Company is successful, the Company will need
to amend the change of control provision.

During the first quarter of 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 the second quarter of 1999, no
funds had been drawn on the facility.

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 $34.8 million for the first
half of 1999 as compared with $32.9 million for the same period in 1998.

The  primary  use  of  cash  in   investing   activities   consists  of  capital
expenditures.   The  Company  incurs  capital  expenditures  to  build  out  new
facilities,  including  growth  initiatives,  to expand or  reposition  existing
facilities  and to maintain the quality and  operations of existing  facilities.
The Company's  capital  expenditures  in the first half of 1999 and 1998 totaled
$57.7  million and $34.9  million,  respectively.  For the entire fiscal year of
1999,  the  Company  expects to make  capital  expenditure  investments  between
approximately  $125.0  million to $135.0  million,  with $90.0 million to $100.0
million related to core markets (domestic airport and travel plaza segments) and
$35.0 million related to growth markets (international  airports and food courts
in shopping malls).  In the year 2000, the Company expects capital  expenditures
to  decline  totaling  approximately  $115.0  million.  The  timing  of  capital
expenditures is subject to the variability in contract  renewals,  the timing of
new contract wins and the timing of related construction.

The Company's  cash  provided by financing  activities in the first half of 1999
was $13.5  million,  compared  with cash used in financing  activities  of $12.4
million for the same period in 1998.  During the first half of 1999, the Company
had cash inflows  from  line-of-credit  borrowings  totaling  $16.1  million and
proceeds  from stock  issuances of $1.7 million.  Offsetting  these cash inflows
were cash outflows of $1.7 million for 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,  $0.6 million of debt repayments and $1.9 million of treasury stock
repurchases.  As of the end of the first half of 1999, approximately 0.6 million
of additional shares can be purchased under the existing treasury stock program.
Cash used in  financing  activities  in the first half of 1998 can be  primarily
attributed  to $11.4  million in  treasury  stock  repurchases,  a $3.5  million
payment in settlement  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  and $0.6
million  of debt  repayments.  Offsetting  these  cash  outflows  were  proceeds
received for the issuance of

                                       14


<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED


common shares relating to the Company's employee stock and option plans totaling
$2.3 million and for issuance of debt totaling $0.9 million.

The  Company's  consolidated  earnings  before  net  interest  expense,   taxes,
depreciation, amortization and other non-cash items ("EBITDA") increased 8.5% to
$35.6  million in the second  quarter of 1999.  EBITDA  increased  10.0% to 52.9
million for the first half of 1999. The EBITDA margin  remained flat at 10.2% of
revenues  for both the second  quarter of 1999 and 1998 and at 8.0% for both the
first half of 1999 and 1998.  Excluding  external Year 2000 costs,  EBITDA would
have  increased  by 10.3% and the EBITDA  margin  would have  improved  20 basis
points  for the second  quarter of 1999.  Excluding  external  Year 2000  costs,
EBITDA would have  increased  12.8% and the EBITDA margin would have improved 20
basis points for the first half of 1999.  The Company's  cash interest  coverage
ratio  (defined  as EBITDA to interest  expense  less  amortization  of deferred
financing  costs for the last four quarters) was 3.1 to 1.0 as of the end of the
second  quarter  of 1999 and 3.4 to 1.0 as of the end of the  second  quarter of
1998.  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>
                                                              TWELVE WEEKS ENDED         TWENTY-FOUR WEEKS ENDED
                                                         ----------------------------- -----------------------------
                                                            JUNE 18,       JUNE 19,      JUNE 18,       JUNE 19,
     (IN MILLIONS)                                            1999           1998          1999           1998
     --------------------------------------------------- --------------- ------------- -------------- --------------
<S>                                                             <C>            <C>           <C>             <C>

     NET INCOME                                               $   6.6         $ 6.2          $ 1.8          $ 2.3
     Interest expense, net (1) (2)                                9.4           8.6           18.6           17.1
     Provision for income taxes                                   4.3           3.7            1.7            1.1
     Depreciation and amortization                               16.1          14.0           31.5           26.5
     Cumulative effect of change in accounting                    ---           ---            0.7            ---
       principle
     Other non-cash items                                        (0.8)          0.3           (1.4)           1.1
     --------------------------------------------------- --------------- ------------- -------------- --------------

     EBITDA                                                    $ 35.6        $ 32.8         $ 52.9         $ 48.1
     --------------------------------------------------- --------------- ------------- -------------- --------------
<FN>

      (1)     Amortization  of deferred  financing costs of $0.3 million for the
              second  quarter of 1999 and 1998 is  included  as a  component  of
              interest expense. Amortization of deferred financing costs of $0.6
              million  for the  first  half of 1999  and 1998 is  included  as a
              component of interest expense.
      (2)     In fiscal year 1998, the Company changed the calculation of EBITDA
              to exclude interest income, which is more consistent with industry
              standards.  The 1998  EBITDA has been  restated  to conform to the
              1999 presentation.
</FN>
</TABLE>


DEFERRED INCOME TAXES

The Company has  recognized net deferred tax assets of $80.5 million at June 18,
1999 and $79.6 million at January 1, 1999 which  generally  represent tax credit
carryforwards  and tax  effects  of future  available  deductions  from  taxable
income.

Realization of the net deferred tax assets is dependent on the Company's ability
to generate  future taxable income.  Management  believes that it is more likely
than not that  future  taxable  income  will be  sufficient  to realize  the net
deferred  tax assets  recorded at June 18,  1999.  Management  anticipates  that
increases in taxable income will arise in future  periods  primarily as a result
of the Company's  growth  strategies and reduced  operating costs resulting from
the ongoing  restructuring of the Company's business processes.  The anticipated
improvement in operating

                                       15


<PAGE>
HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED



results is expected to  increase  the taxable  income base to a level that would
allow realization of the existing net deferred tax assets within eight to twelve
years.

Future levels of operating  income and other  taxable  gains are dependent  upon
general  economic  and  industry  conditions,  including  airport  and  tollroad
traffic, inflation, competition and demand for development of concepts and other
factors beyond the Company's control.  No assurance can be given that sufficient
taxable  income will be generated  to realize the  benefits of future  available
deductions from taxable  income.  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.  Conversely,  the amount of
the net  deferred  tax  assets  considered  realizable  could  be  increased  if
estimates of future taxable income are achieved,  weighing positive and negative
evidence judgmentally.

At the time of the Company's spin-off from Host Marriott Corporation, a deferred
tax asset  valuation  allowance was recognized  because the Company's three year
trend of operating  losses  provided  evidence  that it was more likely than not
that all of the Company's deferred tax assets would not be realized.  At the end
of the second quarter of 1999, there was approximately $21.5 million of deferred
tax asset valuation reserves recorded on the balance sheet. The Company monitors
the realizability of deferred tax assets based upon the weighing of positive and
negative evidence.


YEAR 2000

The Company is currently  addressing 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  has  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 are  identified.  The
project steering team includes executive management and employees with expertise
from various disciplines including  information  technology,  finance,  internal
audit, legal and operations.  In addition, the Company has retained the services
of consulting firms with particular expertise in the Year 2000 problem.

INFORMATION  SYSTEMS.  To date, the Company has  identified 20 internal  systems
that will require correction.  The Company is resolving Year 2000 issues through
replacement of equipment,  modification  of software and  replacement of certain
software systems.  For mission critical systems,  third-party  experts have been
engaged to verify Year 2000 compliance testing. All mission critical information
technology systems at corporate headquarters, which perform financial management
processes,  are Year 2000 compliant.  The Company anticipates that other systems
will be compliant by the third quarter of 1999.

EMBEDDED  SYSTEMS.  A comprehensive  inventory of the Company's mission critical
and date-sensitive  embedded systems has been completed for all of the Company's
locations.   All  manufacturers  of  inventoried   components  utilized  in  the
operations have been contacted in order to determine  whether the components are
Year 2000 compliant. The Company intends to remediate or replace, as applicable,
any identified  non-compliant  mission  critical systems and expects to complete
this  process  by August  1999.  The  quality  of the  responses  received  from
manufacturers, the estimated impact of the individual system on the Company, and
the  ability of the  Company  to perform  meaningful  tests will  influence  its
decision regarding whether to conduct independent testing of embedded systems.


                                       16

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED


THIRD-PARTY RELATIONSHIPS. Formal communications with all critical third parties
have been initiated to determine  potential exposure which would result in their
failure to  remediate  their own Year 2000  issues.  These  third  parties  have
included the Company's supply chain, airport authorities, financial institutions
and utility companies.  New business  relationships with alternate  providers of
products and services will be considered if 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
arise from Year 2000-related  problems.  The Company's  contingency planning for
the Year 2000 will address  various  alternatives  and will include  assessing a
variety of scenarios to which the Company may be required to react.  The Company
continues  to  develop  its  contingency  plans for Year 2000  issues,  and each
individual  location will develop 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 should  mitigate  any adverse  impact
resulting from supplier problems.

POTENTIAL  RISKS.  Potential  sources of risk  include  operational  disruptions
caused by equipment failure and the inability of principal  suppliers to be Year
2000  compliant,  which could result in delays in product  deliveries  from such
suppliers.  Utility  services,  including  electric,  telephone  and water,  are
necessary  for the  Company's  basic  operations.  Should any of these  critical
vendors  fail,  the  impact  of any such  failure  could  become  a  significant
challenge  to the  Company's  ability to operate its  facilities  at  individual
locations.  Based on the information  supplied to date by the Company's critical
vendors and suppliers,  the Company believes the probability of such failures to
be low. However,  the Company's action plan emphasizes  continued  monitoring of
the  progress of these  critical  vendors and  suppliers  toward their Year 2000
compliance.

In addition,  the Company's  operations may also be affected by Year 2000 issues
facing the  Federal  Aviation  Administration  and the  airlines  related to air
traffic  control  systems,  aircraft  equipment  and  security  systems  used in
airports.  These  issues  could  potentially  lead to  degraded  flight  safety,
grounded or delayed flights, selected airport closures,  increased airline costs
and customer inconvenience.  Since the Company is not responsible for addressing
these issues,  it cannot  control or predict the impact on future  operations of
the Year 2000 problem as it pertains to air traffic control and airport security
systems.  If airline passenger  traffic declines  significantly in late 1999 and
the year  2000 as a  result  of Year  2000  problems  experienced  by the FAA or
individual airlines or the public's fear of such problems, the Company's results
of operations may be materially adversely affected.

FINANCIAL  IMPLICATIONS.  The Company  currently  estimates that external costs,
such as consulting  experts,  for its Year 2000 systems  compliance program will
total  approximately  $4.0 million in 1999 and $0.5 million in 2000. The Company
currently  estimates that internal costs, such as remediation  coding and system
support,  for Year 2000 compliance will total approximately $1.1 million in 1999
and $0.3 million in 2000.  Additionally,  final  remediation may require further
capital investments to replace equipment and software. During the second quarter
of 1999,  approximately  $0.8 million in external costs and  approximately  $0.3
million in internal  costs were  incurred  relating to Year 2000  implementation
compared with  approximately  $0.2 million in external  costs and  approximately
$0.2 in  internal  costs in the second  quarter  of 1998.  For the first half of
1999,  approximately  $1.8  million in  external  costs and  approximately  $0.6
million in internal  costs were  incurred  relating to Year 2000  implementation
compared with  approximately  $0.4 million in external  costs and  approximately
$0.3 million in internal costs in the first half of 1998. The anticipated  costs
associated with the Company's Year 2000  compliance  program do not include time
and costs that may be expensed as a result of the failure of any third  parties,
including  suppliers,  to become Year 2000  compliant or costs to implement  any
contingency plans.

The discussion of the Company's  efforts and expectations  relating to Year 2000
compliance are forward-looking statements. The Company's ability to achieve Year
2000 compliance and the level of costs associated therewith,  could be adversely
impacted by, among other things,  the  availability  and cost of programming and
testing  resources,   vendors'  ability  to  modify  proprietary  software,  and
anticipated problems identified in the ongoing compliance review.


                                       17

<PAGE>

HOST  MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS, CONTINUED


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

FORWARD-LOOKING STATEMENTS

This report,  the Company's other reports filed with the Securities and Exchange
Commission  or furnished to  shareholders  and its public  statements  and press
releases contain "forward-looking  statements" within the meaning of the federal
securities  laws,  including,  but not limited  to,  statements  concerning  the
Company's  outlook  for 1999 and  beyond;  the  growth in  revenues  in 1999 and
subsequent years;  earnings per share in 1999; the amount of additional revenues
expected from new shopping mall food court,  airport and travel plaza  contracts
that were added in 1999 or that are  expected to be added or renewed in 1999 and
subsequent  years;  efforts and  expectations  relating to Year 2000 compliance;
anticipated  retention  rates of  existing  contracts  in core  business  lines;
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 the current
economic  downturn in Asia);  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  and the  Year  2000  issue  on  operations.  For  further
information  concerning risks  applicable to operations,  see the Company's Form
10-K.  Forward-looking  statements are inherently uncertain,  and investors must
recognize that actual results could differ  materially  from those  expressed or
implied by the statements.


                                       18

<PAGE>


QUANTITATIVE AND QUALITATIVE DISCLOSURE 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
facility 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/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 the second quarters of 1999 and 1998, the market
value of fixed rate  long-term  debt  would  result in a net  decrease  of $26.4
million and $26.9 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 the second quarter of 1999 and
1998 of $29.1 million and $34.1 million, respectively.  Changes in fair value of
the Company's long-term debt does not impact earnings or cash flows.

The Company has the  ability to borrow up to $75.0  million  against a revolving
credit  facility.  As of the  end of the  second  quarter  of  1999,  borrowings
outstanding  under the revolving  credit  facility  totaled $27.7  million.  The
average  balance was $38.0 million for the second  quarter of 1999 at an average
interest rate of 6.59%. The average balance was $39.0 million for the first half
of 1999 at an average  interest rate of 6.64%.  A  hypothetical  10% increase or
decrease in interest rates would not have a material  effect on earnings for the
second quarter or first half of 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 the second quarter of
1999, 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.

                                       19

<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
PART II.  OTHER INFORMATION AND SIGNATURE



ITEM 1.  LEGAL PROCEEDINGS

LITIGATION

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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     The Annual Meeting of  Shareholders  was held on May 11, 1999 in Baltimore,
     Maryland.  At the  meeting,  J.W.  Marriott,  Jr.  and Andrew J. Young were
     elected to the Board of  Directors  of the  Company  for  three-year  terms
     expiring at the 2002  Annual  Meeting of  Shareholders.  The results of the
     election of J.W. Marriott, Jr., were 28,880,083 votes for and 484,847 votes
     withheld.  The results of the  election of Andrew J. Young were  28,931,602
     votes for and 433,328 votes withheld.  Other members of the Company's Board
     of Directors are:

                           Rosemary M. Collyer
                           Richard E. Marriott
                           William W. McCarten
                           R. Michael McCullough
                           Gilbert T. Ray
                           William J. Shaw

     In addition to the election of J.W. Marriott,  Jr. and Andrew J. Young, the
     shareholders  ratified  the  appointment  of  Arthur  Andersen  LLP  as the
     Company's  independent  auditors.  The results of the appointment of Arthur
     Andersen LLP were  29,249,493  votes for,  44,866 votes  against and 70,571
     votes withheld.


ITEM 5.  OTHER INFORMATION

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     EXHIBIT NO.  DESCRIPTION
         11       Computations of Earnings Per Common Share
         27       Financial Data Schedule (EDGAR Filing Only)

(b) Reports on Form 8-K:

     Form 8-K dated April 22, 1999  announcing  first  quarter  1999 results and
       containing forward-looking statements.


                                       20

<PAGE>

HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
PART II.  OTHER INFORMATION AND SIGNATURE, CONTINUED



                                    SIGNATURE

Pursuant  to the  requirements  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.



                                           HOST MARRIOTT SERVICES CORPORATION



  JULY 30, 1999                                   /S/  BRIAN W. BETHERS
----------------                                -------------------------
      Date                                           Brian W. Bethers
                                                Executive  Vice   President
                                                and    Chief    Financial
                                                Officer (duly  authorized
                                                officer     and     chief
                                                financial officer)


                                       21