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

                                     OR

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

     QUARTER ENDED SEPTEMBER 6, 1996           COMMISSION FILE NO. 1-14040

                     HOST MARRIOTT SERVICES CORPORATION


             DELAWARE                                   52-1938672
    (State of Incorporation)             (I.R.S. Employer Identification Number)


                            10400 FERNWOOD ROAD
                          BETHESDA, MARYLAND 20817
                               (301) 380-7000

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT

     TITLE OF EACH CLASS           NAME OF EACH  EXCHANGE  ON WHICH  REGISTERED
Common Stock, no par value                  Chicago Stock Exchange  
(33,227,433 shares outstanding              New York Stock Exchange
as of September 6, 1996)                    Pacific Stock Exchange
                                            Philadelphia Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes X No __

The total number of shares of common stock  outstanding  as of October 11, 1996,
was 34,483,948.




<PAGE>





              HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES


                                   INDEX

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

                  Condensed Consolidated Statements of Operations -
                    For the Twelve Weeks and Thirty-Six Weeks Ended
                    September 6, 1996 and September 8, 1995                   3

                  Condensed Consolidated Balance Sheets -
                    As of September 6, 1996 and December 29, 1995             4

                  Condensed Consolidated Statements of Cash Flows -
                    For the Thirty-Six Weeks Ended September 6, 1996 and
                    September 8, 1995                                         5

                  Condensed Consolidated Statement of Shareholders' 
                    Deficit - For the Thirty-Six Weeks Ended 
                    September 6, 1996                                         6

                  Notes to Condensed Consolidated Financial Statements      7-8

                  Management's Discussion and Analysis of Results of 
                    Operations and Financial Condition                     9-15

PART II.          OTHER INFORMATION AND SIGNATURE:

                  Legal Proceedings                                          16

                  Changes in Securities                                      16

                  Defaults Upon Senior Securities                            16

                  Submission of Matters to a Vote of Security Holders        16

                  Other Information                                       17-18

                  Exhibits and Reports on Form 8-K                           19

                  Signature                                                  20

                  Computation of Earnings Per Common Share                   21

                  News Release Dated September 26, 1996                   22-24

                                        2

<PAGE>



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


                                                             TWELVE WEEKS ENDED                THIRTY-SIX WEEKS ENDED
                                                       --------------------------------    --------------------------------
                                                        SEPTEMBER 6,     SEPTEMBER 8,       SEPTEMBER 6,     SEPTEMBER 8,
                                                            1996             1995               1996             1995
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------
<S>                                                           <C>              <C>                <C>             <C>  

REVENUES                                                      $335.1          $311.0              $885.2          $803.0 
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------

OPERATING COSTS AND EXPENSES
    Cost of sales                                              101.0            95.8               267.8           247.3 
    Payroll and benefits                                        90.0            83.2               258.5           234.6 
    Rent                                                        51.8            48.0               145.1           128.7 
    Royalties                                                    6.8             5.4                16.8            13.8 
    Depreciation and amortization                               12.8            14.0                36.3            39.5 
    Other                                                       27.2            24.5                76.0            71.5 
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------

       Total operating costs and expenses                      289.6           270.9               800.5           735.4 
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------

OPERATING PROFIT BEFORE CORPORATE
    EXPENSES AND INTEREST                                       45.5            40.1                84.7            67.6 

    Corporate expenses                                         (11.2)           (9.5)              (35.1)          (30.0)
    Interest expense                                            (9.2)           (9.3)              (27.7)          (28.2)
    Interest income                                              0.8             0.5                 1.2             0.6 
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------

INCOME BEFORE INCOME TAXES
    AND EXTRAORDINARY ITEM                                      25.9            21.8                23.1            10.0 
Provision for income taxes                                      10.9             8.1                 9.7             5.4 
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------

INCOME BEFORE
     EXTRAORDINARY ITEM                                         15.0            13.7                13.4             4.6 
Extraordinary item--loss on extinguishment of debt
    (net of related income tax benefit of $5.2                   ---             ---                 ---            (9.6)
million)
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------

NET INCOME (LOSS)                                             $ 15.0          $ 13.7              $ 13.4          $ (5.0)
------------------------------------------------------ ---------------- --------------- -- ---------------- ---------------
                                                                           

INCOME PER COMMON SHARE:
    Primary                                                   $ 0.42                              $ 0.38 
    Fully-Diluted                                             $ 0.42                              $ 0.38 

Weighted Average Common Shares Outstanding:
    Primary                                                     35.2                                35.0 
    Fully-Diluted                                               35.3                                35.1 
</TABLE>


        See  notes  to  condensed   consolidated  financial statements.


                                        3


<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>


                                                                                 SEPTEMBER 6,        DECEMBER 29,
                                                                                     1996                1995
------------------------------------------------------------------------------ ----------------- -- ----------------
<S>                                                                                    <C>                <C> 

                                   ASSETS

Current assets:
   Cash and cash equivalents                                                          $  99.6             $  47.2 
   Accounts receivable, net                                                              31.1                26.9 
   Inventories                                                                           40.5                38.9 
   Deferred income taxes                                                                 17.7                15.3 
   Prepaid rent                                                                           6.2                 5.1 
   Other current assets                                                                   2.5                 2.7 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total current assets                                                                 197.6               136.1 

Property and equipment, net                                                             274.6               271.2 
Intangible assets                                                                        24.3                24.4 
Deferred income taxes                                                                    63.8                59.6 
Other assets                                                                             19.5                22.6 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total assets                                                                       $ 579.8             $ 513.9 
------------------------------------------------------------------------------ ----------------- -- ----------------


                    LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                                   $ 101.3             $  84.5 
   Accrued payroll and benefits                                                          39.5                39.4 
   Income taxes payable                                                                  17.0                 --- 
   Accrued interest payable                                                              12.1                 4.7 
   Current portion of long-term debt                                                      1.3                 1.2 
   Other current liabilities                                                             54.0                48.9 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total current liabilities                                                            225.2               178.7 

Long-term debt                                                                          406.3               407.6 
Other liabilities                                                                        54.0                50.7 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total liabilities                                                                    685.5               637.0 

Common stock, no par value,  100 million shares  authorized,  33,227,433  shares
   issued and outstanding as of September 6, 1996 and
   31,927,474 shares issued and outstanding as of December 29, 1995                       ---                 --- 
Contributed deficit                                                                    (119.1)             (123.1)
Retained earnings                                                                        13.4                 --- 
----------------------------------------------------------------------------- ----------------- -- ----------------

   Total shareholders' deficit                                                         (105.7)             (123.1)
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total liabilities and shareholders' deficit                                        $ 579.8             $ 513.9 
------------------------------------------------------------------------------ ----------------- -- ----------------
</TABLE>


       See  notes  to  condensed   consolidated  financial statements.

                                        4

<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>


                                                                                      THIRTY-SIX WEEKS ENDED
                                                                               --------------------------------------
                                                                                SEPTEMBER 6,         SEPTEMBER 8,
                                                                                    1996                 1995
------------------------------------------------------------------------------ ----------------- -- -----------------
<S>                                                                                    <C>                 <C> 

OPERATING ACTIVITIES
   Net income (loss)                                                                   $ 13.4               $ (5.0)
   Extraordinary loss, net of taxes                                                       ---                  9.6 
------------------------------------------------------------------------------ ----------------- -- -----------------
   Income  before extraordinary item                                                     13.4                  4.6 

   Adjustments to reconcile net income to cash from operations:
     Depreciation and amortization                                                       38.1                 42.0 
     Income taxes                                                                        (4.1)                (5.8)
     Other                                                                                3.3                  0.8 
     Working capital changes:
       (Increase) decrease in accounts receivable                                        (3.6)                 6.0 
       Increase in inventories                                                           (2.9)                (2.5)
       Increase in other current assets                                                  (3.3)                (0.2)
       Increase in accounts payable and accruals                                         44.7                  2.6 
------------------------------------------------------------------------------ ----------------- -- -----------------

   Cash provided by operations                                                           85.6                 47.5 

INVESTING ACTIVITIES
   Capital expenditures                                                                 (42.6)               (37.9)
   Acquisitions                                                                           ---                 (2.9)
   Net proceeds from the sale of assets                                                   3.9                  2.2 
   Other, net                                                                             5.7                  6.9 
------------------------------------------------------------------------------ ----------------- -- -----------------

   Cash used in investing activities                                                    (33.0)               (31.7)

FINANCING ACTIVITIES
   Repayments of long-term debt                                                          (1.0)              (392.4)
   Issuance of long-term debt                                                             ---                390.2 
   Dividends paid                                                                         ---                (13.0)
   Proceeds from stock issuances                                                          0.6                  --- 
   Foreign exchange translation adjustments                                               0.2                  --- 
   Transfers (to) from Host Marriott Corporation, net                                     ---                 12.3 
------------------------------------------------------------------------------ ----------------- -- -----------------

   Cash used in financing activities                                                     (0.2)                (2.9)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         52.4                 12.9 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           47.2                 27.7 
------------------------------------------------------------------------------ ----------------- -- -----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $ 99.6               $ 40.6 
------------------------------------------------------------------------------ ----------------- -- -----------------
</TABLE>


       See  notes  to  condensed   consolidated  financial statements.

                                        5


<PAGE>


HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT (UNAUDITED)
THIRTY-SIX WEEKS ENDED SEPTEMBER 6, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>


                                                  COMMON         CONTRIBUTED        RETAINED
                                                 STOCK            DEFICIT          EARNINGS           TOTAL
-------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S>                                                <C>                <C>             <C>                <C>  

Balance, December 29, 1995                         $    ---          $(123.1)         $    ---           $(123.1)
   Common stock issued for employee
     stock plans and HMC warrants                       ---              1.3               ---               1.3 
   Foreign exchange translation
     adjustments and other                              ---              2.7               ---               2.7 
   Net income                                           ---              ---              13.4              13.4 
-------------------------------------------- ----------------- ---------------- ----------------- -----------------

BALANCE, SEPTEMBER 6, 1996                         $    ---          $(119.1)          $  13.4           $(105.7)
-------------------------------------------- ----------------- ---------------- ----------------- -----------------
</TABLE>



      See  notes  to  condensed   consolidated  financial statements.



                                        6


<PAGE>



HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS WHERE INDICATED)


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 December 29, 1995, as
     amended.  Capitalized  terms not otherwise defined herein have the meanings
     specified in the Annual Report on Form 10-K, as amended.

     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 September 6, 1996 and
     December  29,  1995 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. The Company's 1995 results of operations
     and cash flows are  presented in the  accompanying  condensed  consolidated
     financial  statements as if the Company were formed as a separate entity of
     Host Marriott Corporation,  the Company's parent corporation until December
     29, 1995. Certain  reclassifications  were made to the prior year financial
     statements to conform to the 1996 presentation.

     A supplemental  pro forma  statement of operations for the twelve weeks and
     thirty-six weeks ended September 8, 1995, is included in Part II herein, as
     if the  spin-off  of the Company  from Host  Marriott  Corporation  and the
     transactions related to the spin-off occurred at the beginning of 1995. The
     preparation of the pro forma  consolidated  financial  statements  requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities  and disclosure of contingent  assets and
     liabilities  at the  date of the  financial  statements  and  the  reported
     amounts of revenues and expenses during the periods.
     Actual results could differ from those estimates.

2.   Primary and fully-diluted  income per common share for the twelve weeks and
     thirty-six  weeks ended  September  6, 1996 were  computed by dividing  net
     income by the weighted average number of outstanding common shares adjusted
     for common  equivalent  shares.  Per share data are not  presented  for the
     twelve  weeks and  thirty-six  weeks ended  September  8, 1995  because the
     Company was not a publicly held company during those periods. Pro forma per
     share data for the twelve  weeks and  thirty-six  weeks ended  September 8,
     1995 is included in Part II herein.

3.   Restricted  shares are issued to officers  and key  executives  and are  
     distributed over the award period in annual installments based on continued
     employment and the attainment of certain performance criteria.  All current
     restricted share awards expire at the end of fiscal year 1998. Compensation
     expense  is  recognized  over the award  period  and  consists  of time and
     performance  based parts.  The time based expense is  calculated  using the
     fair  value of the  shares on the date of  issuance  and is  contingent  on
     continued employment. The performance based expense is calculated using the
     fair value of the  Company's  common  stock  during the award period and is
     contingent on attainment of certain performance criteria.  During the first
     twelve  weeks of 1996,  all of the  Company's  executive  officers who held
     restricted  shares of Host  Marriott  Corporation  stock elected to convert
     those restricted  shares into restricted shares of the Company's stock in a
     manner that preserved the intrinsic value of the restricted shares to their
     holders,  except  that the  intrinsic  value was  adjusted to provide a 15%
     conversion incentive . The restricted shares awarded in connection with the
     conversion  incentive  will vest over the original award period in a manner
     identical to those restricted shares originally  awarded.  The Company also
     awarded 445,362 of new restricted  shares to officers and key executives of
     the Company in the first quarter of 1996.
                    
                                        7

<PAGE>


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



4.   The Company is required to adopt SFAS No. 123,  "Accounting for Stock-Based
     Compensation,"  no later  than its  fiscal  year  ending  January  3, 1997.
     Management  expects  to adopt  SFAS No.  123  utilizing  the  method  which
     provides for disclosure of the impact of stock-based compensation grants.

5.   In October  1995,  management  approved a plan to  involuntarily  terminate
     certain  employees  as part of a  restructuring.  The plan is  expected  to
     result  in  the  termination  of  approximately  300  employees,  primarily
     representing  operations  personnel  in  management,  accounting  and human
     resources  positions.  Termination  benefits accrued and charged to expense
     during  the  fourth  quarter  of 1995  amounted  to $11.6  million.  Actual
     termination benefits paid and charged against the liability as of September
     6, 1996 were $3.6 million.  The number of employees actually  terminated as
     of September 6, 1996 was 122.

     Also as part of the restructuring,  the Company committed to a plan to exit
     certain   activities  that  will  result  in  costs,  other  than  employee
     termination costs, that have no future economic benefit to the Company. The
     Company has plans to close ten retail  concessions stores that are included
     in the sports and entertainment  business line and as of September 6, 1996,
     three of the ten stores have been closed.  Lease cancellation  penalty fees
     and related costs accrued and charged to expense  during the fourth quarter
     of 1995 amounted to $2.9 million. Actual penalty fees or related costs paid
     and  charged  against  the  liability  as of  September  6,  1996 were $314
     thousand.

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

7.   In March 1993, Host Marriott  settled a class action lawsuit  involving  
     certain  bondholders by issuing to the bondholders  warrants to purchase up
     to 7.7 million  shares of Host Marriott  common  stock.  As a result of the
     Distribution,   such  warrants  are  exercisable  for  one  share  of  Host
     Marriott's  common stock and one fifth of one share of the Company's common
     stock at the exercise  price of (i) $8.00,  if exercised  before October 8,
     1996, or (ii) $10.00,  if exercised  after October 8, 1996,  but before the
     expiration  date of the  warrants  of  October  8, 1998.  The  Company  has
     reserved 1.4 million shares of common stock for issuance in connection with
     the warrants outstanding as of December 29, 1995. Additionally, the Company
     will  receive  approximately  11  percent  of the  exercise  price for each
     warrant  exercised,  which is based on the  relative  market  values of the
     Company's  common  stock  and  Host  Marriott's  common  stock  immediately
     following the Distribution Date. Fractional shares resulting from exercised
     warrants will be aggregated and sold in the public market and the aggregate
     net cash proceeds will be distributed ratably.

     As  of  September  6,  1996,  common  shares  of  the  Company  issued  and
     outstanding  resulting from the exercise of warrants was 110,425.  Proceeds
     received from the issuance of these common shares were $471 thousand.  From
     the period  subsequent  to September 6, 1996  through  October 8, 1996,  an
     additional  1,258,710  common  shares of the  Company  were  issued and are
     outstanding as a result of further  exercised  warrants.  Proceeds received
     from the issuance of these common shares were $5.4  million.  As of October
     9, 1996,  common shares of the Company remaining to be issued in connection
     with the warrants were 69,050.

          
                                        8



<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION


RESULTS OF OPERATIONS

REVENUES.  Revenues for the twelve  weeks  ("quarter")  ended  September 6, 1996
increased by $24.1 million, or 7.7%, to $335.1 million compared with revenues of
$311.0 million in the third quarter of 1995.  Revenues for the thirty-six  weeks
("three  quarters") ended September 6, 1996 totaled $885.2 million,  an increase
of $82.2 million, or 10.2%, from $803.0 million during the same period in 1995.

AIRPORTS
The  Company's  revenue  growth  during the third  quarter of 1996 was driven by
strong performance in the airport concessions  business line. Airport concession
revenues  were up $27.3  million,  or  13.7%,  to $227.1  million  for the third
quarter  of 1996  compared  with  $199.8  million  for the same  period in 1995.
Domestic airport concession  revenues  increased by $21.0 million,  or 11.0%, to
$212.2  million for the third quarter of 1996 compared to $191.2 million for the
same period in 1995.  International  airport revenues were $14.9 million for the
third  quarter of 1996,  up  substantially  from the $8.6  million for the third
quarter of last year.  Revenue  growth at comparable  airport  locations grew an
impressive 13.8% in the third quarter of 1996. During the third quarter of 1996,
the  positive  effects  of  new  noncomparable  contracts,  primarily  Atlanta's
Hartsfield   International   Airport  and  Amsterdam  Airport  Schiphol  in  the
Netherlands,  were offset by the negative impact of one  noncomparable  contract
with a reduced scope of operation and another noncomparable  contract undergoing
significant construction of new facilities.  Strong comparable revenue growth in
the third  quarter can be  attributed  to an estimated  8.7% growth in passenger
enplanements  and an  estimated  4.7% growth in revenue per  enplaned  passenger
("RPE") at  airports in which the Company  operates.  The Company has  benefited
from annual passenger  enplanement growth in excess of the FAA forecast released
in March of 1996, which projected annual  passenger  enplanement  growth of 4.5%
through the year 2000.  The growth in RPE can be  attributed  to the addition of
new branded locations, moderate increases in menu prices and benefits from other
strategic initiatives.

Growth in revenues  for the first three  quarters of 1996 was also due to strong
performance  in the airport  concessions  business  line with  airport  revenues
totaling  $630.1  million during the period,  an increase of $88.5  million,  or
16.3%,  from the same  period in 1995.  Domestic  airport  concessions  revenues
increased  by $61.8  million,  or 11.7%,  to $589.8  million for the first three
quarters of 1996  compared with $528.0  million for the first three  quarters of
1995.  International  airport  revenues  totaled $40.3 million and $13.6 million
year-to-date  1996  and  1995,  respectively.   Excluding  the  effects  of  the
previously mentioned new noncomparable  contracts in Atlanta and Amsterdam,  the
noncomparable  contract with a reduced scope of operation and the  noncomparable
contract  undergoing  significant  construction of new  facilities,  revenues at
comparable airport locations grew by 14.2% for the first three quarters of 1996.
Increased  revenues during the first three quarters of 1996 reflect an estimated
7.5% growth in passenger  enplanements  and an estimated 6.2% growth in RPE. The
severe winter  weather  throughout the United States caused flight delays during
the first  quarter of 1996 which  resulted in longer  visit times in the airport
for air  travelers and  translated  into  increased  revenues from the Company's
airport  food,  beverage  and  retail  concessions.   Moderate  price  increases
implemented  across all of the Company's  business  lines during the first three
quarters of 1996 also contributed to increased revenues.

TRAVEL PLAZAS
Travel  plaza  concession  revenues  for the third  quarter  of 1996 were  $97.1
million,  a decrease of $1.7  million  compared to the same  quarter a year ago.
Excluding  revenues  relating to a low margin gas contract on one tollroad and a
minor food and beverage contract on another tollroad,  both of which the Company
exited  from in the fourth  quarter  of 1995,  the travel  plaza  business  line
achieved 1.6% growth for the third  quarter of 1996.  This growth was the result
of minimal increases in tollroad traffic and moderate price increases.

Travel plaza  concession  revenues for the first three quarters of 1996 and 1995
totaled  $220.4  million and $223.3  million,  respectively,  a decrease of $2.9
million. Excluding the revenues related to the aforementioned tollroad contracts
exited  during  the fourth  quarter of 1995,  the  travel  plaza  business  line
achieved  2.3%  growth for the first three  quarters  of 1996.  Growth in travel
plaza concessions  revenues on a year-to-date basis was constrained by a decline
in tollroad  traffic  volumes in the first  quarter of 1996 due to harsh  winter
weather.



                                       9
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION, CONTINUED



SPORTS AND ENTERTAINMENT
Sports  and  entertainment   concession   revenues,   primarily   consisting  of
merchandise,  food and beverage  sales at stadiums,  arenas,  and other  tourist
attractions,  decreased by $1.5 million,  to $10.9 million for the third quarter
of  1996,  from  $12.4  million  for  the  same  period  in  1995.   Sports  and
entertainment  concession  revenues  totaled $34.7 million and $38.1 million for
the first  three  quarters  of 1996 and 1995,  respectively,  a decrease of $3.4
million, or 8.9%. These decreases were a result of the Company's exit from three
hotel and casino  gift  shops,  one  during  the fourth  quarter of 1995 and two
during the first quarter of 1996.

SHOPPING MALLS
During the first  quarter of 1996,  the Company  announced a contract to operate
the food and  beverage  outlets at the  Ontario  Mills  Outlet  Mall in Southern
California  with  operations  anticipated to begin in late  November,  1996. The
Company  announced  in the second  quarter of 1996 a  definitive  agreement on a
second mall project with The Mills  Corporation to operate the food and beverage
locations at the Grapevine Mills Outlet Mall outside of Dallas,  Texas. The mall
is expected to open in the Fall of 1997,  and the Company's  operations  will be
similar in size and scope to the Ontario Mills Outlet Mall project.

OPERATING  COSTS AND EXPENSES.  The Company's total operating costs and expenses
were $289.6  million for the third quarter of 1996, or 86.4% of total  revenues,
compared  with $270.9  million for the third  quarter of 1995, or 87.1% of total
revenues.  Operating  costs and expenses  totaled  $800.5  million for the first
three  quarters  of  1996,  or 90.4% of total  revenues,  compared  with  $735.4
million,  or 91.6% of total revenues,  for the same period in 1995. The improved
operating profit margins  quarter-to-quarter  and year-to-date of 0.7% and 1.2%,
respectively,  reflect  operating  leverage benefits derived from revenue growth
and  reduced  costs  resulting  from the  implementation  of  several  operating
initiatives.

Cost of sales for the third quarter of 1996 was $101.0  million,  an increase of
$5.2 million,  or 5.4%,  over the third quarter of last year. Cost of sales as a
percentage of total revenues  decreased 70 basis points during the third quarter
of 1996, most notably due to various cost  controlling  initiatives  implemented
during the year. These initiatives  include the renegotiation of all distributor
agreements  for books and magazines in the Company's  airports and travel plazas
to  improve  service,  in-stock  availability  and cost  margins  as well as the
assignment of a brand expert ("Brand  Manager") to the Company's largest selling
branded  concept.  The  Brand  Manager's  function  is  to  promote  operational
excellence  and  create  operating   efficiencies  across  all  locations  of  a
particular brand. Also contributing to the improved cost of sales margin was the
closure of a low margin gas contract on one tollroad  during the fourth  quarter
of 1995.  Cost of sales for the first  three  quarters of 1996  increased  $20.5
million, or 8.3%, from $247.3 million in 1995 to $267.8 million in 1996. Cost of
sales as a percentage of total revenues  decreased 50 basis points for the first
three quarters of 1996 due to the  aforementioned  cost controlling  initiatives
and the closure of the low margin gas contract in 1995.

Payroll and benefits  totaled $90.0 million during the third quarter of 1996, an
8.2%,  or $6.8 million,  increase  over the third  quarter of 1995.  Payroll and
benefits  as a  percentage  of total  revenues  for the  third  quarter  of 1996
increased slightly to 26.9% from the 26.8% reported for the same period in 1995.
Payroll and  benefits  totaled  $258.5  million for the first three  quarters of
1996, an increase of $23.9 million, or 10.2%, when compared with the same period
in 1995.  Payroll and benefits as a percent of revenues  remained  flat at 29.2%
for the first three quarters of 1996 and 1995.

Rent expense totaled $51.8 million for the third quarter of 1996, an increase of
$3.8  million,  or 7.9%,  over the third  quarter of 1995.  Rent expense for the
first three  quarters  of 1996  increased  $16.4  million,  or 12.7%,  to $145.1
million  from  $128.7  million  for the same  period in 1995.  The  majority  of
increased rent expense is attributable  to increased  revenues on contracts with
rentals  determined  as a percentage  of  revenues.  The  remaining  increase is
attributable to equipment rentals,  which are related to a new point of sale and
back  office  computer  system  that the  Company is rolling  out to each of its
operating units.



                                      10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION, CONTINUED



Royalties  expense  for the third  quarter  of 1996  increased  by 25.9% to $6.8
million from $5.4 million for the third quarter of last year. As a percentage of
total  revenues,  royalties  expense  increased to 2.0% for the third quarter of
1996 compared to 1.7% for the third quarter of 1995.  Royalties  expense totaled
$16.8 million and $13.8  million for the first three  quarters of 1996 and 1995,
respectively, an increase of $3.0 million, or 21.7%. These increases reflect the
Company's continued  introduction of branded concepts to its airport concessions
operations.  Branded  facilities  generate  higher  sales  per  square  foot and
contribute  toward  increased  RPE, which offset  royalty  payments  required to
operate the concepts. Branded concepts in all of the Company's venues have grown
at a compound  annual  growth rate of 11.5% over the last five years.  No single
branded concept  accounts for more than 10% of total revenues.  Branded revenues
increased  14.6% and 14.8% for the third  quarter  and first  three  quarters of
1996, respectively, when compared with the same periods in 1995, the majority of
which related to branded sales at airports.

Branded revenues in airports have increased 36.3% when comparing the first three
quarters of 1996 to the same period in 1995 through the  introduction of branded
concepts  in the  Company's  airports  with  large  new  developments  in Dulles
International Airport just outside of Washington,  D.C., San Diego International
Airport and Atlanta's Hartsfield  International Airport. Airport branded product
sales in the third quarter increased to $53.6 million, or 23.6% of total airport
revenues,  compared with $38.3 million,  or 19.2% of total airport revenues,  in
the third quarter of 1995. Branded product sales at airports increased to $143.4
million,  or 22.8% of total airport  revenues,  for the first three  quarters of
1996, compared with $105.2 million, or 19.5% of total airport revenues,  for the
same period in 1995.

Depreciation and  amortization  expense included in operating costs and expenses
for the third  quarter of 1996 was $12.8  million,  down 8.6%  compared to $14.0
million for the third quarter of 1995.  Depreciation and amortization  decreased
$3.2 million when comparing year-to-date 1996 and 1995, primarily reflecting the
impact of the  Company's  adoption of SFAS No. 121 during the fourth  quarter of
1995.

Other  operating  expenses,   which  includes  utilities,   casualty  insurance,
equipment  maintenance,  trash removal and other  miscellaneous  expenses,  were
$27.2 million for the third quarter of 1996, a $2.7 million, or 11.0%,  increase
over the $24.5  million  total for the third  quarter of 1995.  Other  operating
expenses totaled $76.0 million for the first three quarters of 1996, an increase
of $4.5  million,  or 6.3%,  when  compared  with the same period in 1995.  As a
percentage of total revenues, other operating expenses increased 20 basis points
for the third  quarter of 1996 and decreased 30 basis points for the first three
quarters of 1996, respectively, when compared with the same periods in 1995.

OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses  discussed  above,  operating  profit  before  corporate  expenses  and
interest increased to $45.5 million, or 13.6% of revenues, for the third quarter
of 1996,  from $40.1  million,  or 12.9% of revenues,  for the third  quarter of
1995.  The  substantial  improvement  in the cost of sales  margin and the lower
depreciation  resulting  from  the  adoption  of SFAS No.  121 in 1995  were the
primary factors that caused the increase in the overall operating profit margin.
Operating  profits for airports and travel  plazas were $27.9  million and $16.3
million,  respectively,  for the third  quarter of 1996 as  compared  with $22.6
million  and  $16.0  million,  respectively,  for the  third  quarter  of  1995.
Operating  profits for sports and  entertainment  totaled  $1.3 million and $1.5
million for the third quarter of 1996 and 1995,  respectively.  Operating profit
margins  increased for the airport and travel plazas  business  lines during the
third  quarter of 1996,  while the  operating  profit  margin for the sports and
entertainment business line declined slightly.  Airport operating profit margins
equaled  12.3% for the third  quarter of 1996  compared with 11.3% for the third
quarter of 1995. The travel plazas  operating  profit margins  equaled 16.8% and
16.2% for the third  quarter  of 1996 and 1995,  respectively.  The  sports  and
entertainment  operating profit margin declined  slightly to 11.9% for the third
quarter of 1996 from 12.1% for the same period of 1995.

Operating profit for the first three quarters of 1996 totaled $84.7 million,  or
9.6% of revenues, an increase of $17.1 million, or 25.3%, from $67.6 million, or
8.4% of revenues,  for the same period in 1995.  Operating  profits for airports
and travel  plazas  year-to-date  1996 were  $63.2  million  and $18.1  million,
respectively,  as compared  with $49.5  million  and $17.4  million for the same
period in 1995.  Operating  profit for sports  and  entertainment  for the first
three  quarters  of 1996  and  1995  totaled  $3.4  million  and  $0.7  million,
respectively.  Operating  profit  margins  improved for all business  lines when
comparing the first three quarters of 1996 with the same period in 1995. Airport
operating  profit  margins  



                                      11
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION, CONTINUED



equaled  10.0% for the first three  quarters of 1996  compared with 9.1% for the
first three quarters of 1995. The travel plazas operating profit margins equaled
8.2% and 7.8% for the first three quarters of 1996 and 1995,  respectively.  The
sports and  entertainment  operating  profit  margins  increased to 9.8% for the
first three quarters of 1996 from 1.8% for the same period of 1995.

CORPORATE EXPENSES.  Corporate expenses were $11.2 million for the third quarter
of 1996,  an increase of $1.7 million,  or 17.9%,  over the $9.5 million for the
third quarter of 1995. On a year-to-date basis, corporate expenses totaled $35.1
million  and  $30.0  million  for  1996 and  1995,  respectively.  The  level of
corporate expenses incurred during the third quarter and first three quarters of
1996 reflect increased general and administrative  costs incurred to operate the
Company on a stand-alone basis,  including additional payroll and benefits for a
newly established in-house architectural and construction management department.
Prior to 1996, the Company had purchased and capitalized construction management
services from a third-party provider.

INTEREST  EXPENSE.  Interest  expense was $9.2 million and $27.7 million for the
third quarter and first three quarters of 1996,  respectively,  as compared with
$9.3 million and $28.2 million for the same periods of 1995. These decreases are
attributable  to lower  interest  rates on the Company's debt as a result of the
issuance  of $400.0  million in Senior  Notes at a fixed rate of 9.5%,  which is
nearly 100 basis  points  lower than the debt that it  replaced.  The  favorable
effect of these lower interest rates on interest expense was partially offset by
the cost of  incremental  debt that was  incurred as a part of the Senior  Notes
issuance,  the cost of debt assumed in the acquisition of the Schiphol contract,
as well as an increased level of amortization of deferred financing costs.

INTEREST  INCOME.  Interest income totaled $0.8 million and $1.2 million for the
third quarter and first three quarters of 1996, respectively, compared with $0.5
million and $0.6 million for the same periods in 1995. The increases in interest
income in 1996 were  primarily due to the Company  accelerating  the transfer of
cash  balances  from local  depository  accounts to corporate  interest  bearing
consolidation   accounts  as  well  as  having  increased  cash  available  from
operations.

INCOME  TAXES.  The provision for income taxes for the third quarter of 1996 and
1995 was $10.9 million and $8.1  million,  respectively.  Income tax  provisions
totaled $9.7  million and $5.4 million for the first three  quarters of 1996 and
1995, respectively.

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

NET INCOME (LOSS) AND INCOME  (LOSS) PER COMMON SHARE.  The Company's net income
for the third  quarter of 1996 was $15.0  million,  or $0.42 per  common  share,
compared with $13.7  million for the third  quarter of 1995.  Net income for the
first three quarters of 1996 totaled $13.4  million,  or $0.38 per common share,
compared with a net loss of $5.0 million for the same period in 1995.  Per share
data is not  presented  for the third  quarter or first  three  quarters of 1995
because the Company was not publicly held during those periods.

WEIGHTED  AVERAGE  SHARES  OUTSTANDING.  The weighted  average  number of common
shares  outstanding for the third quarter of 1996 used to calculate  primary and
fully-diluted  earnings  per common  share was 35.2  million  and 35.3  million,
respectively. Included in the primary and fully-diluted number of shares for the
quarter  were  2.0  million  and  2.1  million  of  common  equivalent   shares,
respectively.  The weighted average number of common shares  outstanding for the
first  three  quarters  of 1996  used to  calculate  primary  and  fully-diluted
earnings per common share equaled 35.0 million and 35.1  million,  respectively.
Included in the primary and  fully-diluted  number of shares for the first three
quarters of 1996 were 2.0 million and 2.1 million of common  equivalent  shares,
respectively.  Common  shares  outstanding  increased  from 31.9  million  as of
December 29, 1995 to 33.2 million as of September 6, 1996  primarily  reflecting
the  issuance  of 1.2  million  shares  of  restricted  stock as a result of the
Company's  executive  officers   converting  their  Host  Marriott   Corporation
restricted share awards to 681,710 shares of the Company's  restricted stock



                                      12
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION, CONTINUED


and the Company's awarding of an additional 445,362 shares of restricted stock 
to certain key  executives  during the first quarter of 1996.  Restricted  stock
from these  awards  vest over a period  from 1996 to 1998 based on both time and
performance requirements. The conversion of Host Marriott Corporation restricted
shares to the  Company's  restricted  shares and the new awards were designed to
align the interests of management with the interests of shareholders.


LIQUIDITY AND CAPITAL RESOURCES

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

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

The Senior Notes mature in 2005 and are secured by a pledge of stock,  and 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").  The Senior Notes Indenture contains
covenants  that,  among other things,  limit the ability of the  Guarantors'  to
incur  additional  indebtedness and issue preferred stock, pay dividends or make
other  distributions,  repurchase  capital stock or  subordinated  indebtedness,
create certain liens,  enter into certain  transactions  with  affiliates,  sell
certain assets,  issue or sell capital stock of the  Guarantors,  and enter into
certain mergers and consolidations.

The  First  National  Bank of  Chicago,  as agent  for a group of  participating
lenders, has provided credit facilities  ("Facilities") to Host International in
an  aggregate  principal  amount  of $75.0  million  for a 5-year  term  ("Total
Commitment").  The Total Commitment  consists of (i) a letter of credit facility
in the amount of $40.0 million ("Letter of Credit Facility") for the issuance of
financial  and  non-financial  letters  of credit  and (ii) a  revolving  credit
facility  in the  amount of $35.0  million  ("Revolver  Facility")  for  working
capital and general  corporate  purposes  other than hostile  acquisitions.  All
borrowings under the Facilities are senior obligations of Host International and
are secured by the Company's pledge of, and a first perfected  security 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,  provided  that  dividends  payable to the Company are
limited to 25% of Host  International's  consolidated  net income and  provided,
further,  that no  dividends  can be  declared by Host  International  within 18
months after the closing date of the  Facilities on December 20, 1995.  The loan
agreements  also  contain  certain  financial  ratio  and  capital   expenditure
covenants.  Outstanding borrowings under the Revolver Facility are also required
to be repaid in full for 30  consecutive  days  during  each  fiscal  year.  Any
indebtedness  outstanding  under the  Facilities may be declared due and payable
upon the  occurrence  of certain  events of  default,  including  the  Company's
failure to comply with the several  covenants  noted above, or the occurrence of
certain events of default under the Senior Notes  Indenture.  As of September 6,
1996, and throughout  the twelve and thirty-six  weeks ended  September 6, 1996,
there was no  outstanding  indebtedness  under  the  Revolver  Facility  and the
Company was in compliance with the covenants described above.

The Company's cash flows from operating  activities are affected by seasonality.
Cash from  operations  generally is the strongest in the summer  months  between
Memorial  Day and Labor Day.  Cash  provided by  operations,  before  changes in
working  capital,  totaled $50.7 million for the first three quarters of 1996 as
compared  with $41.6  million for the same 


                                      13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION, CONTINUED


period in 1995.  Operating  cash flow remained  strong  during  the  third  
quarter which has historically been the Company's strongest seasonal quarter. At
September 6, 1996, cash and cash equivalents  reached a seasonally high level of
$99.6 million.  The increase in cash and cash  equivalents was anticipated as of
the end of the third  quarter of 1996.  During the fourth  quarter of 1996,  the
Company  will fund a $19.0  million  interest  payment  and is  expected to fund
approximately $20.0 million in capital expenditures.

The primary uses of cash in investing activities consist of capital expenditures
and  acquisitions.  The Company  incurs  capital  expenditures  to build out new
facilities,  expand or  re-concept  existing  facilities,  and to  maintain  the
quality and improve  operations of existing  facilities.  The Company's  capital
expenditures in the first three quarters of 1996 and 1995, totaled $42.6 million
and $37.9 million, respectively. For the entire fiscal year of 1996, the Company
expects to make capital  expenditure  investments of approximately $49.0 million
in its core domestic  airport and travel plaza business lines and  approximately
$16.6  million in growth  markets and for a new  financial  system.  The Company
expects to fund these 1996 expenditures with its operating cash flow.

The Company's  cash used in financing  activities in the first three quarters of
1996 was $0.2 million, compared with $2.9 million for the same period in 1995.

At September 6, 1996,  the  Company's  working  capital  resulted in its current
liabilities  exceeding  its current  assets by $27.6  million.  As a cash driven
business,  the Company benefits from maintaining  negative working capital.  The
working  capital is managed  throughout  the year to  effectively  maximize  the
financial  returns to the Company.  If needed,  the Company's  Revolver Facility
provides  funds for  liquidity,  seasonal  borrowing  needs  and  other  general
corporate purposes.

The  Company's   consolidated   earnings   before   interest   expense,   taxes,
depreciation,  amortization and other non-cash items  ("EBITDA")  increased $3.5
million,  or 7.8%, to $48.1 million in the third quarter of 1996. EBITDA totaled
$88.8 million and $80.7  million for the first three  quarters of 1996 and 1995,
respectively,  an increase of $8.1 million, or 10.0%. The quarter-to-quarter and
year-to-date  comparisons  reflect the impact of improved  operating  results in
1996. The Company believes that EBITDA is a meaningful  measure of its operating
performance and is used by certain  investors to estimate the Company's  ability
to  meet  debt  service  requirements  and  fund  capital  investments.   EBITDA
information  should not be considered an  alternative  to net income,  operating
profit,  cash  flows  from  operations,  or any  other  operating  or  liquidity
performance  measure  recognized  by Generally  Accepted  Accounting  Principles
("GAAP"). The calculation of EBITDA for the Company may not be comparable to the
same  calculation  by other  companies  because the  definition of EBITDA varies
throughout the industry.

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

                                                   TWELVE WEEKS ENDED                  THIRTY-SIX WEEKS ENDED
                                            ----------------------------------     --------------------------------
                                              SEPTEMBER 6,     SEPTEMBER 8,         SEPTEMBER 6,    SEPTEMBER 8,
(IN MILLIONS)                                     1996             1995                 1996            1995
------------------------------------------- ----------------- ---------------- --- --------------- ----------------
<S>                                                 <C>              <C>                 <C>              <C>   

EBITDA                                              $ 48.1           $ 44.6              $ 88.8           $ 80.7 
Interest expense                                      (9.0)            (9.1)              (26.9)           (27.8)
Provision for income taxes                           (10.9)            (8.1)               (9.7)            (5.4)
Extraordinary item, net of taxes                       ---              ---                 ---             (9.6)
Depreciation and amortization                        (13.3)           (13.9)              (38.1)           (42.0)
Other non-cash items                                   0.1              0.2                (0.7)            (0.9)
------------------------------------------- ----------------- ---------------- --- --------------- ----------------

NET INCOME (LOSS)                                   $ 15.0           $ 13.7              $ 13.4           $ (5.0)
------------------------------------------- ----------------- ---------------- --- --------------- ----------------
</TABLE>


During  the  third   quarter  of  1996,   the   Company   announced   an  oddlot
selling/purchasing  program that was intended to offer  holders of less than 100
shares of  Company  stock  the  option  of  selling  their  oddlot  holdings  or
increasing  their  


                                      14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
     FINANCIAL CONDITION, CONTINUED


holdings to a lot of 100 shares,  with a minimal cost paid by the holder.  While
benefiting  small  shareholders,  this  program is also  intended  to reduce the
Company's  overall number of  shareholders  which would result in a reduction of
corporate  communication  costs.  This program is being  administered by a third
party. Any difference in oddlot shares being sold or purchased under the program
will be met on the open market and thus will not result in any new common shares
being issued and will not require the use of any of the Company's cash.


IMPAIRMENTS OF LONG-LIVED ASSETS

Effective  September 9, 1995,  the Company  adopted SFAS No. 121, which requires
that an  impairment  loss be  recognized  when the  carrying  amount of an asset
exceeds the sum of the estimated undiscounted future cash flows of the asset. In
adopting SFAS No. 121 (and thereby  changing its method of measuring  long-lived
asset  impairments  from a business-line  basis to an individual  operating-unit
basis),  the  Company  wrote down  substantially  all of the  long-lived  assets
(primarily  leasehold  improvements  and  equipment) of 15 individual  operating
units in the fourth quarter of 1995.  Approximately  72% of the total write-down
of $46.8  million  taken in the fourth  quarter of 1995 related to two operating
units (one tollroad unit and one airport unit). The total cash flow deficit from
the 15 operating units is projected to be approximately $40.3 million during the
remaining terms of the lease  agreements,  of which $27.9 million relates to the
two operating units referred to above.


DEFERRED INCOME TAXES

Realization  of the  net  deferred  tax  assets  totaling  $81.5  million  as of
September  6, 1996,  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  September  6, 1996.  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 other
factors  beyond  the  Company's  control,  and no  assurance  can be given  that
sufficient  taxable  income  will be  generated  for full  utilization  of these
temporary  deferred  deductions.  Management  has  considered  these  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.

                                        15

<PAGE>


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

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.
                                        16


<PAGE>


PART II.  OTHER INFORMATION AND SIGNATURE, CONTINUED



ITEM 5.  OTHER INFORMATION

HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED  CONSOLIDATED  STATEMENTS OF OPERATIONS  (UNAUDITED) (1) (In
millions, except per share amounts)
<TABLE>
<CAPTION>

                                                TWELVE WEEKS ENDED (1) (2)              THIRTY-SIX WEEKS ENDED (1) (2)
                                          ---------------------------------------    --------------------------------------
                                                           PRO                                       PRO
                                                          FORMA      HISTORICAL                     FORMA      HISTORICAL
                                            SEPT. 6,    SEPT. 8,     SEPT. 8,         SEPT. 6,    SEPT. 8,     SEPT. 8,
                                             1996          1995         1995            1996         1995         1995
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
<S>                                           <C>          <C>          <C>             <C>          <C>          <C>

REVENUES                                      $335.1       $310.2       $311.0          $885.2       $800.1       $803.0 
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

OPERATING COSTS AND EXPENSES
   Cost of sales                               101.0         95.8         95.8           267.8        247.3        247.3 
   Payroll and benefits                         90.0         83.1         83.2           258.5        234.2        234.6 
   Rent                                         51.8         47.9         48.0           145.1        128.5        128.7 
   Royalties                                     6.8          5.4          5.4            16.8         13.8         13.8 
   Depreciation and amortization                12.8         13.9         14.0            36.3         39.3         39.5 
   Other                                        27.2         24.5         24.5            76.0         67.7         71.5 
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

    TOTAL OPERATING COSTS AND EXPENSES         289.6        270.6        270.9           800.5        730.8        735.4 
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

OPERATING PROFIT BEFORE CORPORATE
   EXPENSES AND INTEREST                        45.5         39.6         40.1            84.7         69.3         67.6 
    Corporate expenses                         (11.2)       (11.5)        (9.5)          (35.1)       (33.5)       (30.0)
    Interest expense                            (9.2)        (9.1)        (9.3)          (27.7)       (26.8)       (28.2)
    Interest income                              0.8          0.5          0.5             1.2          0.6          0.6 
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

INCOME BEFORE INCOME TAXES
   AND EXTRAORDINARY ITEM                       25.9         19.5         21.8            23.1          9.6         10.0 
Provision (benefit) for income taxes            10.9          7.3          8.1             9.7          5.3          5.4 
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

INCOME BEFORE
   EXTRAORDINARY ITEM                           15.0         12.2         13.7            13.4          4.3          4.6 
Extraordinary item--loss on
   extinguishment of debt (net of
related
   income tax benefit of $5.2 million)           ---          ---          ---             ---          ---         (9.6)
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

NET INCOME (LOSS)                             $ 15.0       $ 12.2       $ 13.7          $ 13.4       $  4.3       $ (5.0)
----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------

INCOME PER COMMON SHARE (3)
    Primary                                   $ 0.42       $ 0.36                       $ 0.38       $ 0.13 
    Fully-Diluted                             $ 0.42       $ 0.36                       $ 0.38       $ 0.13 

WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING (4)
    Primary                                     35.2         34.0                         35.0         33.6 
 Fully-Diluted                                  35.3         34.2                         35.1         33.9 
</TABLE>

                                        17


<PAGE>

PART II.  OTHER INFORMATION AND SIGNATURE, CONTINUED


ITEM 5  OTHER INFORMATION, CONTINUED

(1)    Pro forma data for the third  quarter  and first  three  quarters of 1995
       reflect (i) the  elimination of the revenues and operating costs of three
       full-service   hotels   transferred  to  Host  Marriott   Corporation  in
       connection with the December 29, 1995, spin-off of the Company,  (ii) the
       elimination of the revenues,  operating  costs,  and interest  expense on
       capital   leases  related  to  certain   former   restaurant   operations
       transferred to Host Marriott  Corporation,  (iii) recording of management
       fee  income  for  Host   Marriott   Corporation's   retained   restaurant
       operations,  (iv)  adjustment to reduce  interest  expense to reflect the
       decrease  in  interest  rates as a result of the  issuance  of the Senior
       Notes and to reflect additional  interest expense on certain  incremental
       debt,  (v)  increase in general and  administrative  costs to operate the
       Company  on a  stand-alone  basis,  and (vi) the income tax impact of pro
       forma adjustments at statutory rates.
(2)    Pro forma presentation reflects results as if the spin-off of the Company
       from Host Marriott  Corporation and the related transactions had occurred
       at the  beginning  of 1995.  Comparisons  on a pro forma basis are better
       indicators of relative  performance  between periods  because  historical
       results  do not  reflect  the  spin-off  until the  distribution  date of
       December 29, 1995.
(3)    Historical  loss per common share is not  presented for the third quarter
       or first three quarters of 1995 because the Company was not publicly held
       during those periods.
(4)    The number of shares used to compute pro forma loss per share is based on
       Host Marriott Corporation's weighted average number of outstanding common
       shares adjusted for the one-for-five (i.e. one share of Company stock for
       every five shares of Host Marriott  Corporation)  distribution ratio used
       at the spin-off.

                                        18

<PAGE>

PART II.  OTHER INFORMATION AND SIGNATURE, CONTINUED



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     EXHIBIT NO.  DESCRIPTION
         11       Computations of Earnings Per Common Share
         20       News Release dated September 26, 1996
         27       Financial Data Schedule (EDGAR Filing Only)

(b)  Reports on Form 8-K:

     None.

                                        19


<PAGE>

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



         OCTOBER 18, 1996                         /S/  BRIAN W. BETHERS
--------------------------------        ---------------------------------------
              Date                                   Brian W. Bethers
                                              Senior  Vice   President  and  
                                                Chief   Financial Officer




                                        20