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 19, 1998

                                       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 24,
1998, was 33,891,433.


<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 Twenty-Four Weeks Ended
           June 19, 1998 and June 20, 1997                                   2

         Condensed Consolidated Balance Sheets -
           As of June 19, 1998 and January 2, 1998                           3

         Condensed Consolidated Statements of Cash Flows -
           For the Twenty-Four Weeks Ended June 19, 1998 and
           June 20, 1997                                                     4

         Condensed Consolidated Statement of Shareholders' Deficit -
           For the Twenty-Four Weeks Ended June 19, 1998                     5

         Notes to Condensed Consolidated Financial Statements              6-8

         Management's Discussion and Analysis of  Financial Condition
           and Results of Operations                                      9-19

         Quantitative and Qualitative Disclosure About Market Risk         n/a

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                                   21

         Signature                                                          22

         Computations of Income Per Common Share                         23-24

                                       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 19,       JUNE 20,         JUNE 19,       JUNE 20,
                                                           1998           1997             1998           1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>            <C> 

REVENUES                                                     $322.6         $292.6          $599.9          $555.7 
---------------------------------------------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES
    Cost of sales                                              94.7           85.3           177.2           160.3 
    Payroll and benefits                                       95.5           87.5           185.4           171.6 
    Rent                                                       49.9           46.1            94.3            90.1 
    Royalties                                                   7.0            6.1            12.9            11.4 
    Depreciation and amortization                              13.5           12.0            25.5            24.1 
    General and administrative                                 13.5           12.0            27.1            24.5 
    Other                                                      30.0           27.0            57.0            55.8 
---------------------------------------------------------------------------------------------------------------------

       Total operating costs and expenses                     304.1          276.0           579.4           537.8 
---------------------------------------------------------------------------------------------------------------------

OPERATING PROFIT                                               18.5           16.6            20.5            17.9 

    Interest expense                                           (9.2)          (9.2)          (18.4)          (18.4)
    Interest income                                             0.6            1.0             1.3             1.8 
---------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                      9.9            8.4             3.4             1.3 
Provision for income taxes                                      3.7            3.3             1.1             0.5 
---------------------------------------------------------------------------------------------------------------------

NET INCOME                                                   $  6.2         $  5.1          $  2.3          $  0.8 
---------------------------------------------------------------------------------------------------------------------

INCOME PER COMMON SHARE:
    Basic                                                    $ 0.18         $ 0.15          $ 0.07          $ 0.02 
    Diluted                                                  $ 0.17         $ 0.14          $ 0.06          $ 0.02 

Weighted Average Common Shares Outstanding:
    Basic                                                      34.0           34.7            34.2            34.6 
    Diluted                                                    35.7           36.2            35.9            36.2 

</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 19,           JANUARY 2,
                                                                                     1998                1998
------------------------------------------------------------------------------ ----------------- -- ----------------
<S>                                                                                 <C>                  <C>
                                   ASSETS

Current assets:
   Cash and cash equivalents                                                          $  53.4            $   78.1 
   Accounts receivable, net                                                              22.2                24.5 
   Inventories                                                                           42.1                41.1 
   Deferred income taxes                                                                 11.5                11.5 
   Prepaid rent                                                                           8.2                 7.0 
   Other current assets                                                                   7.7                 7.0 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total current assets                                                                 145.1               169.2 

Property and equipment, net                                                             291.4               279.9 
Intangible assets                                                                        22.1                22.1 
Deferred income taxes                                                                    57.5                56.4 
Other assets                                                                             21.5                20.4 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total assets                                                                       $ 537.6             $ 548.0 
------------------------------------------------------------------------------ ----------------- -- ----------------


                    LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                                   $  71.3             $  72.2 
   Accrued payroll and benefits                                                          47.0                46.0 
   Accrued interest payable                                                               3.3                 4.8 
   Current portion of long-term debt                                                      1.0                 1.0 
   Other current liabilities                                                             41.7                41.5 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total current liabilities                                                            164.3               165.5 

Long-term debt                                                                          406.0               405.8 
Other liabilities                                                                        52.3                52.9 
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total liabilities                                                                    622.6               624.2 

Common stock, no par value,  100 million shares  authorized,  34,965,369  
   shares issued as of June 19, 1998 and
   34,733,815 shares issued as of January 2, 1998                                         ---                 --- 
Contributed deficit                                                                    (107.3)             (107.7)
Retained earnings                                                                        37.4                35.1 
Accumulated other comprehensive income                                                   (0.2)               (0.1)
Treasury stock - 1,091,100 shares at June 19, 1998
   and 253,100 shares at January 2, 1998                                                (14.9)               (3.5)
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total shareholders' deficit                                                          (85.0)              (76.2)
------------------------------------------------------------------------------ ----------------- -- ----------------

   Total liabilities and shareholders' deficit                                         $ 537.6            $ 548.0 
------------------------------------------------------------------------------ ----------------- -- ----------------
</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 19,             JUNE 20,
                                                                                    1998                 1997
------------------------------------------------------------------------------ ----------------- -- -----------------
<S>                                                                                   <C>                 <C>

OPERATING ACTIVITIES
   Net income                                                                          $  2.3               $  0.8 

   Adjustments to reconcile net income to cash from operations:
     Depreciation and amortization                                                       26.5                 24.9 
     Amortization of deferred financing costs                                             0.6                  0.6 
     Income taxes                                                                        (1.1)                (1.7)
     Other                                                                                4.5                  2.0 
     Working capital changes:
       Decrease (increase) in accounts receivable                                         2.3                 (0.1)
       Increase in inventories                                                           (1.4)                (1.5)
       (Increase) decrease in other current assets                                       (2.7)                 1.6 
       Decrease in accounts payable and accruals                                         (0.7)               (34.8)
------------------------------------------------------------------------------ ----------------- -- -----------------

   Cash provided by (used in) operations                                                 30.3                 (8.2)

INVESTING ACTIVITIES
   Capital expenditures                                                                 (39.0)               (27.4)
   Other, net                                                                            (3.6)                 1.0 
------------------------------------------------------------------------------ ----------------- -- -----------------

   Cash used in investing activities                                                    (42.6)               (26.4)

FINANCING ACTIVITIES
   Repayments of long-term debt                                                          (0.6)                (0.7)
   Issuance of long-term debt                                                             0.9                  --- 
   Proceeds from stock issuances                                                          2.3                  1.6 
   Payment to Host Marriott Corporation for Marriott
       International options and deferred shares                                         (3.5)                (2.2)
   Purchases of treasury stock                                                          (11.4)                 --- 
   Foreign currency translation adjustments                                              (0.1)                (0.4)
------------------------------------------------------------------------------ ----------------- -- -----------------

   Cash used in financing activities                                                    (12.4)                (1.7)

DECREASE IN CASH AND CASH EQUIVALENTS                                                   (24.7)               (36.3)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           78.1                104.2 
------------------------------------------------------------------------------ ----------------- -- -----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $ 53.4               $ 67.9 
------------------------------------------------------------------------------ ----------------- -- -----------------
</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 19, 1998
(IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                           ACCUMULATED
  COMMON                                                                                      OTHER
  SHARES                                             COMMON     CONTRIBUTED   RETAINED    COMPREHENSIVE    TREASURY
OUTSTANDING                                           STOCK       DEFICIT     EARNINGS        INCOME         STOCK      TOTAL
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
<S>         <C>                                      <C>           <C>         <C>           <C>             <C>          <C>

 34.5       Balance, January 2, 1998                $    ---      $(107.7)    $  35.1       $  (0.1)       $  (3.5)    $ (76.2)
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------

              Comprehensive income:
  ---            Net income                              ---          ---         2.3           ---            ---         2.3 
                 Foreign currency translation
  ---              adjustments                           ---          ---         ---          (0.1)           ---        (0.1)
 ----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
  ---         Total comprehensive income                 ---          ---         2.3          (0.1)           ---         2.2 

              Common stock issued for
  0.3             employee stock and option plans        ---          2.3         ---           ---            ---         2.3 
              Payment to Host Marriott Corporation
                for Marriott International options
  ---           and deferred shares                      ---         (3.5)        ---           ---            ---        (3.5)
 (0.8)        Treasury stock purchases                   ---          ---         ---           ---          (11.4)      (11.4)
 (0.1)        Deferred compensation                      ---          1.6         ---           ---            ---         1.6 
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------

 33.9       BALANCE, JUNE 19, 1998                  $    ---      $(107.3)    $  37.4       $  (0.2)       $ (14.9)    $ (85.0)
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
</TABLE>





           See notes to condensed consolidated financial statements.

 
                                      5



<PAGE>

HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED 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  2, 1998  ("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 19, 1998 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 1998 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 issued to certain officers and key executives.  As of
     the end of the second  quarter of 1998,  there were  approximately  409,000
     restricted share awards  outstanding.  All current  restricted share awards
     expire at the end of fiscal year 1998.  Compensation  expense is recognized
     over  the  award  period  and  consists  of  time-  and   performance-based
     components.  The time-based  expense is calculated  using the fair value of
     the  shares  on the  date  of  issuance  and  is  contingent  on  continued
     employment.  The  performance-based  expense is  calculated  using the fair
     value  of the  Company's  common  stock  during  the  award  period  and is
     contingent on attainment of certain performance criteria.

4.   The Company  adopted  SFAS No. 130,  "Reporting  Comprehensive  Income," in
     the first  quarter of 1998 and the adoption did not have a material  effect
     on the Company's condensed consolidated  financial statements.  The Company
     adopted SFAS No. 128,  "Earnings Per Share," SFAS No. 129,  "Disclosure  of
     Information about Capital Structure," and SFAS No. 131,  "Disclosures about
     Segments  of an  Enterprise  and  Related  Information"  during  1997.  The
     adoption of these standards did not have a material effect on the Company's
     1997 consolidated financial statements. 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"
     were issued  subsequent  to the end of fiscal year 1997 and are required to
     be adopted in fiscal years  beginning after December 15, 1998, with earlier
     adoption  permitted.  The Company  will adopt SOP 98-1 and SOP 98-5 for its
     1999 fiscal year and is currently evaluating the financial statement impact
     of the adoptions.

5.   In March 1993,  Host  Marriott  Corporation,  the  Company's  former parent
     corporation,  settled  a class  action  lawsuit  involving  certain  of its
     bondholders  by issuing to the  bondholders  warrants to purchase up to 7.7
     million shares of Host Marriott Corporation common stock, approximately 7.3
     million of which were unissued as of the Distribution  Date. As a result of
     the  Distribution,  such  warrants  are  exercisable  for one share of Host
     Marriott  Corporation's  common  stock  and one  fifth of one  share of the
     Company's common stock.


                                       6

<PAGE>


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



     As of June 19, 1998, the Company had issued  1,381,668 common shares of the
     Company resulting from the exercise of Host Marriott Corporation  warrants.
     Proceeds  received  from the  issuance  of these  common  shares  were $5.9
     million. As of June 19, 1998, the Company remains obligated to issue 56,517
     shares  of  common  stock  for  the  remaining  unexercised  Host  Marriott
     Corporation  warrants at a price of $5.33 per Company  share.  The warrants
     expire on October 8, 1998.

6.   The Company  has three  reportable  operating  segments:  airports,  travel
     plazas and  shopping  malls and  entertainment.  The  Company's  management
     evaluates  performance  of each  segment  based  on  profit  or  loss  from
     operations  before  allocation  of  general  and  administrative  expenses,
     unusual and extraordinary items,  interest and income taxes. 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 operating  segments are provided in the
     following tables.

<TABLE>
<CAPTION>
                                                    TWELVE WEEKS ENDED         TWENTY-FOUR WEEKS ENDED
                                                ---------------------------  -----------------------------
                                                  JUNE 19,      JUNE 20,       JUNE 19,        JUNE 20,
                 (IN MILLIONS)                      1998          1997           1998            1997
                 -----------------------------------------------------------------------------------------
                   <S>                              <C>            <C>             <C>            <C>   

                 REVENUES:
                   Airports                         $ 231.3       $ 206.8         $ 439.0        $ 404.7 
                   Travel plazas                       75.5          72.8           130.7          125.5 
                   Shopping malls
                     and entertainment                 15.8          13.0            30.2           25.5 
                 -----------------------------------------------------------------------------------------
                 Total segment revenues             $ 322.6       $ 292.6         $ 599.9        $ 555.7 
                 -----------------------------------------------------------------------------------------

                 OPERATING PROFIT:(1)
                   Airports                         $  25.4       $  21.2         $  44.1        $  38.1 
                   Travel plazas                        5.8           5.9             2.1            2.3 
                   Shopping malls
                     and entertainment                  0.8           1.5             1.4            2.0 
                 -----------------------------------------------------------------------------------------
                 Total segment operating profit     $  32.0       $  28.6         $  47.6        $  42.4 
                 -----------------------------------------------------------------------------------------
<FN>

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




<TABLE>
<CAPTION>
                                                                        JUNE 19,            JANUARY 2,
                 (IN MILLIONS)                                            1998                 1998
                 ---------------------------------------------------------------------------------------------
                  <S>                                                     <C>                  <C>  

                 ASSETS:
                   Airports                                              $ 291.4              $ 272.9
                   Travel plazas                                            91.8                 95.7
                   Shopping malls
                     and entertainment                                      28.0                 32.9
                 ---------------------------------------------------------------------------------------------
                 Total segment assets                                    $ 411.2              $ 401.5
                 ---------------------------------------------------------------------------------------------

</TABLE>
 
                                       7

<PAGE>

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



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

<TABLE>
<CAPTION>
                                                          TWELVE WEEKS ENDED           TWENTY-FOUR WEEKS ENDED
                                                      ---------------------------   ------------------------------
                                                       JUNE 19,       JUNE 20,       JUNE 19,        JUNE 20,
                 (IN MILLIONS)                           1998           1997           1998            1997
                 -----------------------------------------------------------------------------------------------
                 <S>                                      <C>             <C>          <C>             <C> 

                 OPERATING PROFIT:
                   Segments                               $ 32.0         $ 28.6         $ 47.6          $ 42.4 
                   General and administrative              (13.5)         (12.0)         (27.1)          (24.5)
                   expenses
                 -----------------------------------------------------------------------------------------------
                 Total operating profit                   $ 18.5         $ 16.6         $ 20.5          $ 17.9 
                 -----------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
                                                                           JUNE 19,          JANUARY 2,
                 (IN MILLIONS)                                               1998               1998
                 ------------------------------------------------------------------------------------------
                   <S>                                                            <C>              <C>  

                 ASSETS:
                   Segments                                                      $ 411.2           $ 401.5
                   Corporate and other(1)                                          126.4             146.5
                 ------------------------------------------------------------------------------------------
                 Total assets                                                    $ 537.6           $ 548.0
                 ------------------------------------------------------------------------------------------

<FN>
                (1)The  majority  of the  decrease  in  corporate  and other was
                   related  to  a  decrease  in  corporate  cash   concentration
                   accounts with a significant  amount  related to $11.4 million
                   of treasury stock purchases during the first half of 1998.
</FN>
</TABLE>

 
                                       8


<PAGE>


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


RESULTS OF OPERATIONS

REVENUES.  Revenues  for the  twelve  weeks  ("quarter")  ended  June  19,  1998
increased by 10.3% to $322.6 million from the same period in 1997,  with revenue
growth  experienced in all business lines.  Revenues for the  twenty-four  weeks
("first half") ended June 19, 1998 totaled $599.9 million,  an increase of 8.0%.
These  increases in revenues  were driven by strong  growth in domestic  airport
food and beverage  concessions  particularly from sales at locations with recent
openings of new branded  concepts.  Revenue growth was also aided by an increase
in  enplanements,  customer  traffic on  tollroads,  the opening of two new mall
contracts  in the  fourth  quarter  of 1997  and  the  conversion  of the  Miami
International  Airport  contract  from a  management  agreement  to an operating
agreement during the second quarter of 1998.

<TABLE>
<CAPTION>
                                                      TWELVE WEEKS ENDED         TWENTY-FOUR WEEKS ENDED
                                                   --------------------------  ----------------------------
                                                     JUNE 19,    JUNE 20,         JUNE 19,     JUNE 20,
         (IN MILLIONS)                                 1998        1997             1998         1997
         --------------------------------------------------------------------------------------------------
          <S>                                          <C>         <C>             <C>           <C> 

         REVENUES BY BUSINESS LINE
             AIRPORTS:
                Domestic                                $215.8       $191.9           $409.5       $376.8
                International                             15.5         14.9             29.5         27.9
         --------------------------------------------------------------------------------------------------
                   Total airports                        231.3        206.8            439.0        404.7
         --------------------------------------------------------------------------------------------------
             TRAVEL PLAZAS                                75.5         72.8            130.7        125.5
             SHOPPING MALLS AND ENTERTAINMENT             15.8         13.0             30.2         25.5
         --------------------------------------------------------------------------------------------------

             Total revenues                             $322.6       $292.6           $599.9       $555.7
         --------------------------------------------------------------------------------------------------
</TABLE>


The Company's diversified branded concept portfolio,  which consists of over 100
internationally  known  brands,  regional  specialty  concepts  and  proprietary
concepts, is a unique competitive advantage in the marketplace. 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  increased
18.8% and 17.1% for the second quarter and first half of 1998 compared to a year
ago,  the  majority  of which  related  to the  continued  expansion  of branded
revenues at airports and  revenues  from new  shopping  mall food courts,  which
consist  primarily of branded food and beverage.  Branded revenues in all of the
Company's  venues have grown at a compound  annual  growth rate of 8.1% over the
last five fiscal years. The Company's exposure to any one brand is limited given
the  diversity of brands that are offered and given that the  Company's  largest
branded concept, Burger King, accounted for only 10.1% of total revenues for the
first half of 1998.

AIRPORTS
Airport  concession  revenues  were up 11.8% to $231.3  million  for the  second
quarter  of 1998  compared  to a year  ago,  with  domestic  airport  concession
revenues up 12.5% and  international  airport  revenues  up 4.0%.  International
revenues  reflect  increased  revenues at the Montreal  International  Airport -
Dorval in Canada  and the  Schiphol  Airport  in the  Netherlands  offset by the
negative impact of exchange rate  fluctuations  and weak  enplanements  stemming
from the Asian economic situation.

Comparable  domestic  airport  contracts  exclude the negative  impact of exited
contracts,  contracts  with  significant  changes  in  scope  of  operation  and
contracts undergoing significant construction of new facilities, as well as, the
positive  impact of new  contracts.  During  the  second  quarter  of 1998,  the
Chicago,  St.  Louis,  Miami and  Columbus  airport  contracts  were  considered
noncomparable.  Revenue growth at comparable  domestic airport locations,  which
comprise almost 90% of total domestic airport revenues,  grew a solid 11.4% over
the second  quarter  of 1997.  Passenger  enplanements  at  comparable  domestic
airports  were up an estimated  3.0% over last year's  second  quarter while RPE
grew 8.2%. In March 1998, the FAA forecasted annual U.S.  passenger  enplanement
growth of U.S.  carriers of 3.7%  through  the year 2009.  Second  quarter  1998
enplanement growth was below the FAA's long range forecast.

                                       9



<PAGE>

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


RPE,  which is the primary  measure of how  effective  the Company is  capturing
potential customers and increasing customer spending, grew 8.2% at the Company's
comparable  domestic  airport  locations in the second  quarter of 1998 over the
same period last year.  Approximately half of the RPE growth achieved during the
quarter can be attributed to the opening of new branded  concepts at a number of
the  Company's  larger   locations,   including  Los  Angeles,   San  Francisco,
Minneapolis and Cleveland.  In addition,  moderate  increases in menu prices and
various real estate  maximization  efforts also  contributed  to the 8.2% growth
rate.  Branded  revenues in airports  showed an increase of 24.4% when comparing
the second quarter of 1998 to the same period in 1997.  Airport branded revenues
in the second  quarter  increased to $69.3  million,  or 30.0% of total  airport
revenues,  compared with $55.7 million,  or 26.9% of total airport revenues,  in
the second quarter of 1997.

Airport concession revenues were up 8.5% to $439.0 million for the first half of
1998 compared to a year ago, with domestic airport  concession  revenues up 8.7%
and  international  airport  concession  revenues  up 5.7%.  The  opening of the
Montreal  International  Airport - Dorval in Canada during the second quarter of
1997  contributed   significantly  to  the  increase  in  international  airport
revenues,  which was  partially  offset by the negative  impact of exchange rate
fluctuations and weak enplanements stemming from the Asian economic situation.

During the first half of 1998,  the  Chicago,  St.  Louis,  Miami,  Columbus and
Montreal  airport  contracts were  considered  noncomparable.  Revenue growth at
comparable  domestic airport  locations grew a solid 9.2% over the first half of
1997.  Passenger  enplanements  at  comparable  domestic  airports  were  up  an
estimated 1.8% over the first half of 1997.

RPE grew 7.2% at the  Company's  comparable  domestic  airport  locations in the
first half of 1998 over the same period last year.  Branded revenues in airports
showed an  increase of 19.0% when  comparing  the first half of 1998 to the same
period in 1997.  Airport branded revenues in the first half of 1998 increased to
$131.3  million,  or 29.9% of  total  airport  revenues,  compared  with  $110.3
million, or 27.3% of total airport revenues, in the first half of 1997.

During the first quarter of 1998, the Company  announced a new domestic  airport
contract at the Southwest Florida  International Airport in Fort Myers. This ten
year contract is for the development and operation of 16,000 square feet of food
and beverage  concessions  space  throughout the airport's main terminal and its
two concourses.

Also  during  the  first  quarter  of  1998,  the  Company   announced   several
international  concession  facilities at Kuala Lumpur International  Airport and
Vancouver  International  Airport, both of which opened in the second quarter of
1998. The Company,  along with its 51% Malaysian joint venture  partner,  Dewina
Berhad,  was awarded several  facilities at the Kuala Lumpur airport.  The joint
venture will  operate  over 8,000  square feet of food and beverage  concessions
space and will  feature a mixture of  international  and local brand  offerings.
This contract is the Company's first  Southeast  Asian  contract,  a key step in
establishing  the Company's  presence in Southeast Asia. The Company was awarded
two new concession facilities at the Vancouver  International Airport, adding to
the Company's existing  operations in the domestic terminal.  The new facilities
include a Bar and Grill concept and a Starbucks  Coffee  location.  This airport
was the Company's first Canadian airport  contract,  and since its opening,  the
Company has received  several  awards on the design of the food and beverage and
retail operations at the airport.

During  the second  quarter  of 1998,  the  Company  announced  that it has been
selected  as the  food  and  beverage  master  developer/operator  at the  Miami
International  Airport,  until  the  year  2007.  The  new  contract  is for the
development  and  operation of more than 56,000 square feet of food and beverage
space located  throughout  nine concourses and the main terminal of the airport.
Prior to this award, the Company  operated the existing  generic  facilities for
Dade County  under a management  agreement  and recorded  management  fees.  The
Company  will record  revenues and expenses  under the new  agreement.  When the
facilities are completed in 2000, the estimated annualized revenues are expected
to be  approximately  $30.0  million.  The  Company  also  announced a new joint
venture with Cool Planet, Inc., a subsidiary of Planet Hollywood  International,
Inc.,  to bring a new ice cream and  

                                       10

<PAGE>

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


dessert  concept  called Cool Planet to the  Company's  venues.  The 50/50 joint
venture was formed to open up to 10 Cool Planet  locations,  five likely  within
the next year.

Subsequent  to the end of the second  quarter  of 1998,  the  Company  announced
several development achievements.  Food and beverage extensions were obtained at
the  Jacksonville  International  Airport  in Florida  and at  Terminal 3 of JFK
International  Airport in New York.  The Company  won a new  contract to operate
retail concessions in the north terminal at San Francisco  International Airport
and announced a planned expansion at Chicago O'Hare  International  Airport with
the recent  approval for a new 8,000 square foot business center at the airport.
Also, the Company has been selected by the Palm Beach Airport  Authority to take
over food and  beverage  operations  in October of 1998 in West Palm Beach.  The
Company's selection requires the positive vote of the Palm Beach County Board of
Commissioners and the vote is expected in August.

The contracts won or renewed in core markets  during or subsequent to the second
quarter  described  above are  expected  to  generate  more than $50  million in
revenues once opened and redeveloped.

TRAVEL PLAZAS
Travel plaza concession  revenues for the second quarter of 1998 were up 3.7% to
$75.5  million  when  compared  to the same  period in 1997 due to low  gasoline
prices, offset by inclement weather experienced throughout the northeastern U.S.
during much of the second  quarter.  Revenues for the travel plazas segment grew
4.1% to $130.7 million for the first half of 1998. This growth was the result of
increased  tollroad  traffic  due to low  gasoline  prices,  as well as moderate
increases  in menu prices.  Low gasoline  prices,  higher  household  income and
record-high  consumer  confidence have led the Energy  Department and the Travel
Institute of America to forecast  strong  growth in vehicle  miles  traveled for
this summer of 3.9% and 3%, respectively.

The Company  started to introduce  the  Starbucks  concept to a number of travel
plazas during the first half of 1998 in an effort to increase  customer  capture
and enhance real estate productivity on the tollroads. Travel plazas in Maryland
and Pennsylvania are currently  operating Starbucks kiosks and 12 more Starbucks
locations are planned.

SHOPPING MALLS AND ENTERTAINMENT
Shopping malls and entertainment  concession  revenues,  primarily consisting of
merchandise, food and beverage sales at food courts in shopping malls, stadiums,
arenas, and other tourist  attractions,  increased by 21.5% to $15.8 million for
the  second  quarter  of 1998 when  compared  with the  second  quarter of 1997.
Revenues for the shopping  malls and  entertainment  segment grew 18.4% to $30.2
million for the first half of 1998  compared  to the same period in 1997.  These
increases can be  attributed to the opening of the Grapevine  Mills Mall and the
Vista  Ridge  Mall in the  fourth  quarter  of  1997,  as well as a  significant
increase in revenues at an entertainment location.

During the second  quarter of 1998,  the Company  announced  its first mall food
court  project with Chelsea GCA Realty,  Inc. to master lease 13,000 square feet
of food and  beverage  facilities,  including a food court and a 500 seat common
area, at the Leesburg  Corner  Premium  Outlets in Virginia.  The upscale outlet
center will be built in three  phases with the first phase  scheduled to open in
the fall of 1998.

Also during the second quarter of 1998, the Company announced that it reached an
agreement with Forest City Ratner  Companies to develop and manage 35,000 square
feet of food and beverage operations in its 42nd Street Entertainment and Retail
Project in New York. This project will be one of the Company's  largest mall and
entertainment  projects  with annual  sales  expected to exceed $15 million once
construction of the units has been completed in late 1999.

The Company currently has seven mall contracts with five leading  developers and
discussions  underway with many more developers.  A number of projects are under
discussion, including two in Europe.

OPERATING  COSTS AND EXPENSES.  Total  operating  costs and expenses were $304.1
million for the second  quarter of 1998,  or 94.3% of total  revenues,  compared
with $276.0 million for the second quarter of 1997, or 94.3% of total  

                                       11


<PAGE>

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



revenues.  Total  operating  costs and  expenses for the first half of 1998 were
$579.4  million,  or 96.6% of total revenues,  compared with $537.8 million,  or
96.8% of total  revenues  for the first  half of 1997.  The  improved  operating
profit margin for the first half of 1998 reflects  operating  leverage  benefits
derived  from revenue  growth and reduced  costs,  primarily in other  operating
expenses.

Cost of sales for the second  quarter of 1998  increased  11.0% to $94.7 million
when  compared to the same  period in 1997.  Cost of sales for the first half of
1998  increased  10.5% to $177.2  million when  compared  with the first half of
1997. Cost of sales as a percentage of total revenues  increased 20 basis points
and 70  basis  points  during  the  second  quarter  and  first  half  of  1998,
respectively.  The margins are influenced by start-up activities at new food and
beverage  concepts  that  result in product  waste.  In  addition,  the  Company
experienced commodity cost increases in dairy products and premium coffee beans.

Payroll and benefits  totaled $95.5 million during the second quarter of 1998, a
9.1% increase over the second  quarter of 1997.  Payroll and benefits  increased
8.0% to $185.4  million  during the first half of 1998 when compared to the same
period in 1997. Payroll and benefits as a percentage of total revenues decreased
30 basis points for the second  quarter and remained  flat for the first half of
1998,  reflecting  benefits  from the use of labor  scheduling  software and the
implementation of store manager training programs.

Rent expense  totaled $49.9 million and $94.3 million for the second quarter and
first half of 1998,  an increase  of 8.2% and 4.7% above the second  quarter and
first half of 1997, respectively. Rent expense as a percentage of total revenues
improved  30 basis  points for the second  quarter  and 50 basis  points for the
first half of 1998 and can be  attributed to sales  increases on contracts  with
fixed rental rates,  as well as new or renewed  contracts  with  favorable  rent
margins.

Royalties  expense for the second  quarter and first half of 1998  increased  by
14.8% and 13.2% to $7.0 million and $12.9 million,  respectively,  when compared
with the same periods in 1997.  As a  percentage  of total  revenues,  royalties
expense  increased by 10 basis points for both the second quarter and first half
of 1998. These increases in royalties  expense reflects the Company's  continued
introduction  of  branded  concepts  to its  concessions  operations.  Royalties
expense as a  percentage  of branded  sales  totaled 6.1% and 6.7% in the second
quarter of 1998 and 1997,  respectively,  and totaled 6.0% and 6.5% in the first
half of 1998 and 1997, respectively. These margin decreases were attributable to
the addition of branded concepts with  lower-than-average  royalty  percentages.
Branded  facilities  generate higher sales per square foot and contribute toward
increased RPE, which more than offset royalty  payments  required to operate the
concepts.

Depreciation  and  amortization  expense,  excluding  $0.5  million of corporate
depreciation  on property  and  equipment  which is  included as a component  of
general and administrative expenses, was $13.5 million for the second quarter of
1998,   compared  to  $12.0   million,   excluding  $0.3  million  of  corporate
depreciation  on  property  and  equipment,  for the  second  quarter  of  1997.
Depreciation  and amortization for the first half of 1998 and 1997 totaled $25.5
million and $24.1 million,  excluding $1.0 million and $0.7 million of corporate
depreciation  on property and equipment,  respectively.  Increased  depreciation
related to the buildout of new branded locations and additional  amortization of
pre-opening  costs related to new mall  contracts was partially  offset by lower
depreciation  related to the  write-down  of one  impaired  airport  unit in the
fourth quarter of 1997.

General and administrative expenses were $13.5 million for the second quarter of
1998, an increase of 12.5% from a year ago. General and administrative  expenses
for the first half of 1998  increased  10.6% to $27.1  million  compared  to the
first half of 1997. These increases were primarily  attributable to the addition
of  corporate  resources  in  accounting,   systems,  business  development  and
strategic planning and marketing to focus on growth initiatives in the Company's
core markets and new venues,  as well as increased  consulting  costs associated
with  systems  initiatives.  During the first  half of 1998,  $400  thousand  in
external costs was included in general and  administrative  expenses relating to
the Company's Year 2000 compliance program.

                                       12

<PAGE>

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


Other  operating  expenses,   which  includes  utilities,   casualty  insurance,
equipment  maintenance,  trash removal and other  miscellaneous  expenses,  were
$30.0 million for the second  quarter of 1998, a 11.1%  increase from the second
quarter of 1997.  Other operating  expenses  increased 2.2% in the first half of
1998 to $57.0 million compared to a year ago. As a percentage of total revenues,
other  operating  expenses  increased 10 basis points for the second quarter and
decreased 50 basis points for the first half of 1998 when compared with the same
periods in 1997.  The majority of the margin  improvement  for the first half of
1998 was due to lower supplies expenses.

OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses  discussed above,  operating profit increased 11.4% to $18.5 million or
5.7% of revenues for the second  quarter of 1998,  from $16.6 million or 5.7% of
revenues for the second  quarter of 1997.  Operating  profit  improved  14.5% to
$20.5  million  for the first half of 1998,  or 3.4% of revenues  compared  with
$17.9 million, or 3.2% of revenues for the same period in 1997.

<TABLE>
<CAPTION>
                                                           TWELVE WEEKS ENDED         TWENTY-FOUR WEEKS ENDED
                                                       ---------------------------  ----------------------------
                                                          JUNE 19,     JUNE 20,       JUNE 19,      JUNE 20,
     (IN MILLIONS)                                          1998         1997           1998          1997
     -----------------------------------------------------------------------------------------------------------
      <S>                                                    <C>          <C>             <C>          <C>   

     OPERATING PROFIT BY BUSINESS LINE (1)
         AIRPORTS:
            Domestic                                         $ 24.5      $ 20.4          $ 43.0        $ 36.9 
            International                                       0.9         0.8             1.1           1.2 
     -----------------------------------------------------------------------------------------------------------
               Total airports                                  25.4        21.2            44.1          38.1 
     -----------------------------------------------------------------------------------------------------------
         TRAVEL PLAZAS                                          5.8         5.9             2.1           2.3 
         SHOPPING MALLS AND ENTERTAINMENT                       0.8         1.5             1.4           2.0 
     -----------------------------------------------------------------------------------------------------------

         Total operating profit                              $ 32.0      $ 28.6          $ 47.6        $ 42.4 
     -----------------------------------------------------------------------------------------------------------

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

Operating  profit margins  increased for the airports  business  line,  totaling
11.0% of airport revenues,  before general and administrative  expenses, for the
second quarter of 1998 as compared with 10.3% of airport revenues for the second
quarter  of  1997.   Airport   operating  profit  margin,   before  general  and
administrative expenses,  improved 60 basis points to 10.0% in the first half of
1998 compared to the same period in 1997.

The travel plaza  operating  profit margin,  before  general and  administrative
expenses,  decreased 40 basis points to 7.7% for the second  quarter of 1998 and
decreased  20 basis  points  to 1.6% for the  first  half of  1998.  The  slight
decrease in the travel plaza operating  profit margin for the second quarter and
first half of 1998 can be attributed to inclement weather experienced throughout
the  northeastern  U.S. during much of the second quarter,  as well as increased
cost of sales and upward pressure on wages.

The operating  profit  margin for shopping  malls and  entertainment,  excluding
general and administrative expenses, decreased to 5.1% for the second quarter of
1998 from 11.5% in the  second  quarter  of 1997 and  decreased  to 4.6% for the
first half of 1998 from 7.8%  reported in the first half of 1997.  The  shopping
mall and  entertainment  operating  profit margins were  constrained by start-up
costs, including the amortization of pre-opening costs related to the opening of
two new mall contracts,  the negative impact of the Asian crisis at one Hawaiian
location and costs associated with the closing of an  entertainment  location in
Florida.


INTEREST  EXPENSE.  Interest  expense  remained  flat at $9.2  million and $18.4
million for the second  quarter and first half of 1998 when compared to the same
periods in 1997,  reflecting the 9.5% fixed rate of interest on the $400 million
of Senior Notes.

                                       13

<PAGE>

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


INTEREST  INCOME.  Interest  income  decreased  to $0.6  million  for the second
quarter of 1998  compared with $1.0 million in the second  quarter of 1997.  The
second quarter of 1997 included $0.4 million of  non-recurring  interest  income
relating to a negotiated  agreement with an Airport  Authority which  reimbursed
the  Company  for the cost of funding  certain  capital  improvements.  Interest
income  decreased to $1.3 million for the first half of 1998  compared with $1.8
million for the same period in 1998.

INCOME TAXES.  The provision for income taxes for the second quarter of 1998 and
1997 was $3.7 million and $3.3  million,  reflecting  an  effective  tax rate of
37.4% and 39.5% for the respective quarters.  Provision for income taxes for the
first half of 1998 and 1997 was $1.1  million  and $0.5  million,  respectively,
reflecting an effective tax rate of 33.0% and 39.5% for the respective  periods.
The decline in 1998  effective tax rates  reflects the reversal of the valuation
allowance  for  the  estimated  benefit  of  recognizing   certain  tax  credits
previously thought to be unrealizable.

NET INCOME AND INCOME  PER COMMON  SHARE.  Net income for the second  quarter of
1998  increased  21.6% to $6.2  million,  or $0.17  per  diluted  common  share,
compared with $5.1 million for the second  quarter of 1997, or $0.14 per diluted
common share.  Net income for the first half of 1998  increased to $2.3 million,
or $0.06 per  diluted  common  share,  compared  with $0.8  million for the same
period in 1997, or $0.02 per diluted  common  share.  The increase in net income
for the second quarter and first half of 1998 reflects  strong  revenue  growth,
slightly  improved  operating  profit  margins and a favorable  reduction in the
corporate tax rate.

WEIGHTED  AVERAGE  SHARES  OUTSTANDING.  The weighted  average  number of common
shares  outstanding  used to  calculate  basic  income per common  share for the
second quarter of 1998 and 1997 was 34.0 million and 34.7 million, respectively.
The  weighted  average  number of common  shares  outstanding  used to calculate
diluted income per common share for the second quarter of 1998 and 1997 was 35.7
million and 36.2 million, respectively.

The weighted average number of common shares outstanding used to calculate basic
income per common share for the first half of 1998 and 1997 was 34.2 million and
34.6  million,  respectively.  The  weighted  average  number of  common  shares
outstanding used to calculate diluted income per common share for the first half
of 1998 and 1997 totaled 35.9 million and 36.2 million, respectively.

As of the end of the first half of 1998,  common shares  issued and  outstanding
had decreased by  approximately  0.6 million from year-end 1997 and totaled 33.9
million,  primarily reflecting 0.8 million shares purchased by the Company under
the  Company's  share  repurchase  program  partially  offset by the issuance of
shares under the Company's Employee Stock Purchase Plan and Comprehensive  Stock
Plan.

                                       14

<PAGE>

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


LIQUIDITY AND CAPITAL RESOURCES

The Company funds its capital  requirements  with a combination of existing cash
balances and operating cash flow. The Company  believes that cash flow generated
from  ongoing  operations  and current cash  balances 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
existing  credit  facilities  and 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'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 March 2003.

The Company is required to make semi-annual cash interest payments on its 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.  Management
does not expect either of these events to occur.

The  Senior  Notes  are  secured  by  a  pledge  of  stock  and  are  fully  and
unconditionally  guaranteed 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 indenture
governing the Senior Notes (the  "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 (the "Facilities") to Host International
consisting  of  a  $75.0  million   revolving  credit  facility  (the  "Revolver
Facility")  and a $25.0  million  letter of credit  facility.  The $75.0 million
Revolver Facility  provides for working capital and general  corporate  purposes
other than hostile  acquisitions.  The $25.0 million  letter of credit  facility
provides for the issuance of financial and nonfinancial  letters of credit.  Any
borrowings under the Facilities are senior obligations of Host International and
are secured by the capital stock of Host International and the guarantors.

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, except that dividends payable to the Company are limited
to 25% of Host  International's  consolidated net income, as defined in the loan
agreement.  During  the  first  quarter  of  1998  and in  compliance  with  the
Facilities,  Host  International  paid $4.7 million of dividends to the Company.
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,  or the
occurrence of certain events of default under the Senior Notes Indenture.  As of
June 19, 1998 and throughout the twelve weeks and  twenty-four  weeks ended June
19, 1998, 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 and income  taxes,  totaled $33.8 million for the first half of
1998 as compared with $28.3 million for the same period in 1997. 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.

                                       15

<PAGE>

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


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 1998 and 1997 totaled
$39.0  million and $27.4  million,  respectively.  For the entire fiscal year of
1998, the Company presently expects to make capital  expenditure  investments of
approximately  $60.0  million in its core markets  (domestic  airport and travel
plaza  business  lines)  and  $15.0  million  in growth  markets  (international
airports,  food courts in U.S.  shopping malls and other venues).  The timing of
actual capital expenditures can vary from that expected due to issues pertaining
to project  scheduling  inherent in the construction and approval  process.  The
Company expects to fund 1998 expenditures with its operating cash flow.

The  Company's  cash used in financing  activities in the first half of 1998 was
$12.4 million,  compared with cash used in financing  activities of $1.7 million
for the same period in 1997. The Company  announced a share  repurchase  program
during 1997 for the repurchase of up to $15.0 million of the Company's  stock on
the open  market  over a two-year  period and as of the end of 1997,  shares had
been  repurchased at an aggregate  purchase  price of $3.5 million.  The Company
purchased additional treasury stock during the first half of 1998 totaling $11.4
million.  Subsequent  to the end of the  second  quarter  of 1998,  the  Company
completed the entire share repurchase program.  The Company is considering a new
share repurchase program, pending necessary approvals,  which will be similar in
size to or larger than the share repurchase  program  announced in 1997. The new
program,  if approved,  will be funded by available  cash and will not interfere
with the Company's growth plans. In addition to treasury share repurchases, cash
used in financing  activities  during the first half of 1998 consisted of 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 $0.2 million of foreign currency translation  adjustments.  Offsetting these
cash outflows for  financing  activities in the first half of 1998 were proceeds
received for the issuance of common shares  relating to the  Company's  employee
stock and option  plans  totaling  $2.3  million  and for the  issuance  of debt
totaling $0.9 million.

Cash used in financing activities in the first half of 1997 was primarily due to
a $2.2 million  payment in settlement of the Company's  obligation  for the 1996
exercise of  nonqualified  stock options and release of deferred stock incentive
shares  held by  certain  former  employees  of Host  Marriott  Corporation.  In
addition,  the Company had $0.7 million of debt  repayments  and $0.4 million of
foreign  currency  translation  adjustments.  Offsetting these cash payments was
cash received from issuance of common shares relating to the Company's  employee
stock and option plans totaling $1.6 million.

The  Company's   consolidated   earnings   before   interest   expense,   taxes,
depreciation, amortization and other non-cash items ("EBITDA") increased 8.8% to
$33.4  million in the second  quarter of 1998.  EBITDA  increased  8.3% to $49.4
million  for the first  half of 1998.  The EBITDA to  revenue  margin  decreased
slightly to 10.4%  compared to 10.5% in the second  quarter of 1997 and remained
level at 8.2%  for both the  first  half of 1998  and  1997.  The cash  interest
coverage  ratio  (defined as EBITDA to interest  expense  less  amortization  of
deferred financing costs) was 3.5 to 1.0 in the first half of 1998 compared with
3.0 to 1.0 for the same period in 1997. The Company  believes that EBITDA is one
meaningful measure of its operating performance and is used by certain investors
to estimate 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.

                                       16


<PAGE>

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


The following is a reconciliation of net income to EBITDA:

<TABLE>
<CAPTION>
                                                    TWELVE WEEKS ENDED          TWENTY-FOUR WEEKS ENDED
                                                 -------------------------    -----------------------------
                                                  JUNE 19,     JUNE 20,          JUNE 19,       JUNE 20,
           (IN MILLIONS)                            1998         1997              1998           1997
           ------------------------------------- ----------- ------------- -- --------------- -------------
           <S>                                        <C>          <C>               <C>           <C>  

           NET INCOME                              $  6.2        $  5.1             $  2.3        $  0.8 
           Interest expense (1)                       9.2           9.2               18.4          18.4 
           Provision for income taxes                 3.7           3.3                1.1           0.5 
           Depreciation and amortization             14.0          12.3               26.5          24.8 
           Other non-cash items                       0.3           0.8                1.1           1.1 
           ------------------------------------- ----------- ------------- -- --------------- -------------

           EBITDA                                  $ 33.4        $ 30.7             $ 49.4        $ 45.6 
           ------------------------------------- ----------- ------------- -- --------------- -------------

<FN>
         (1) Amortization  of deferred  financing costs of $0.3 million and $0.4
             million for the second quarter of 1998 and 1997,  respectively,  is
             included  as a  component  of  interest  expense.  Amortization  of
             deferred  financing  costs of $0.6 million and $0.6 million for the
             first half of 1998 and 1997, respectively,  is included in interest
             expense.
</FN>
</TABLE>

Excluding  the $0.4  million  in  non-recurring  interest  income in the  second
quarter of 1997,  EBITDA would have increased by 10.2% for the second quarter of
1998  compared  to the same  period in 1997 and the  EBITDA  margin  would  have
remained  level  at 10.4%  between  the  periods.  Excluding  the  non-recurring
interest income,  EBITDA would have increased by 9.3% for the first half of 1998
compared to the same period in 1997 and the EBITDA  margin would have  increased
to 8.2% in the first half of 1998 from 8.1% in the first half of 1997.

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 the assets (primarily leasehold  improvements and
equipment) of 15 individual  operating units to the extent the carrying value of
the assets exceeded the fair value of the assets in 1995.  Twelve of the fifteen
units had projected cash flow deficits,  and,  accordingly,  the assets of these
units  were  written-off  in their  entirety.  The  remaining  three  units  had
projected  positive  cash flows and the assets were  partially  written  down to
their estimated fair values.

During 1996 and 1997, 6 of the original 15 impaired  units were either  disposed
of or the lease term expired.  As of June 19, 1998,  the total cash flow deficit
(including  operating cash flows and necessary  capital  expenditures)  from the
remaining 9 operating units was projected to be approximately $10.0 million over
the remaining weighted-average life of the contracts of 3.8 years. Substantially
all of the remaining  deficit is attributable to three  operating  units,  which
include two airport units and one tollroad unit.


DEFERRED INCOME TAXES

Realization of the net deferred tax assets totaling $69.0 million as of June 19,
1998, 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 19,
1998.  Management  anticipates  that  increases in taxable  income will arise in
future  periods  primarily as a result of the Company's  growth  strategies  and
profit improvement  resulting from several strategic  initiatives focused on the
Company's business processes.  The anticipated  improvement in operating results
is  expected to  increase  the  taxable  income base to a level that would allow
realization of the existing net deferred tax assets within nine to twelve years.
During the second quarter of 1998, the Company revised its interim effective tax
rate to reflect  the  reversal  of the  valuation  allowance  for the  estimated
benefit of  recognizing  certain tax  credits  that were  previously  

                                       17

<PAGE>

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


considered unrealizable.  During the third quarter of 1997, the Company recorded
a $1.9  million  benefit to recognize  certain tax credits that were  previously
considered unrealizable.

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


YEAR 2000

The Company is  currently  working to resolve the  potential  impact of the Year
2000 on the  Company's  operations.  The Year  2000  problem  is the  result  of
computer  programs  being written using two digits  (rather than four) to define
the  applicable  year.  Any of the Company's  programs or computer  hardware and
electronic  equipment  that have  time-sensitive  software or computer chips may
recognize  a date using "00" as a date  other  than the Year 2000,  which  could
result in miscalculations or system failures.  If the Company,  its customers or
its vendors are unable to resolve such processing  issues in a timely manner, it
could result in a material financial risk. Accordingly,  the Company is devoting
resources to resolve all significant Year 2000 issues in a timely manner as they
are identified. An action plan consisting of three phases was formulated in 1997
and phase  one was  completed  in the first  quarter  of 1998.  The first  phase
consisted  of  a  formulation  of  an  overall  assessment  of  the  issues  and
documentation  of an action  plan.  The  Company  anticipates  that all  mission
critical information technology systems at corporate headquarters, which perform
financial management processes,  will be Year 2000 compliant by the end of 1998.
Full completion of the action plan should occur in 1999.

The Company  currently  anticipates  the funding of external  costs for its Year
2000 systems compliance  program will total  approximately $1.5 million in 1998,
$1.5 million in 1999 and $0.5 million in 2000.  Additionally,  final remediation
may require  further  capital  investments  to replace  equipment  and software.
During the first half of 1998,  $0.4  million of the  estimated  $1.5 million in
external costs were incurred relating to Year 2000 implementation.

In addition to the risks  noted  above,  the  Company's  operations  may also be
affected by Year 2000 issues facing the Federal Aviation  Administration related
to air traffic control and security systems used in airports. These issues could
potentially  lead to  degraded  flight  safety,  grounded  or  delayed  flights,
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 as it pertains to air traffic control and
airport security systems.


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  may  contain  "forward-looking  statements"  within the meaning of the
federal securities laws, including  statements  concerning the Company's outlook
for 1998 and beyond;  the growth in total revenue in 1998 and subsequent  years;
the amount of additional  revenues  expected from new domestic and international
shopping mall food court and airport  contracts  that were added in 1997 or that
are expected to be added or renewed in 1998 and  subsequent  years;  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.


                                       18


<PAGE>

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


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
the Year 2000 issue on  operations.  For further  information  concerning  risks
applicable  to  the  Company's   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.


QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Not applicable.




                                       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 5, 1998 in Chantilly,
     VA. At the meeting,  Rosemary M. Collyer,  William W. McCarten, and William
     J.  Shaw  were  elected  to the  Board  of  Directors  of the  Company  for
     three-year terms expiring at the 2001 Annual Meeting of  Shareholders.  The
     results of the election of Rosemary M. Collyer,  were 28,509,033  votes for
     and  959,200  votes  withheld.  The  results of the  election of William W.
     McCarten were 28,917,263 votes for and 550,970 votes withheld.  The results
     of the  election of William J. Shaw were  28,926,391  votes for and 541,842
     votes withheld. Other members of the Company's Board of Directors are:

                           Richard E. Marriott
                           J.W. Marriott, Jr.
                           R. Michael McCullough
                           Gilbert T. Ray
                           Andrew J. Young

     In addition to the election of Rosemary M. Collyer, William W. McCarten and
     William  J. Shaw,  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 29,325,931  votes for, 61,392 votes
     against and 80,910 votes withheld.

     The  shareholders  ratified the  amendment of the  Company's  Comprehensive
     Stock Plan,  increasing the number of shares of the Company's  Common Stock
     available  to be  awarded  under the Plan from 6.5  million  to 10  million
     shares.  The results of the amendment of the Comprehensive  Stock Plan were
     20,316,915 votes for,  4,537,383 votes against,  200,673 votes withheld and
     4,413,262 broker non-votes.

     The  shareholders  ratified the amendment of the Company's  Employee  Stock
     Purchase  Plan,  increasing  the number of shares of the  Company's  Common
     Stock  that may be  purchased  under the Plan  from  750,000  to  1,250,000
     shares.  The results of the amendment of the Employee  Stock  Purchase Plan
     were 24,235,373  votes for,  665,709 votes against,  153,889 votes withheld
     and 4,413,262 broker non-votes.

ITEM 5.  OTHER INFORMATION

     None.

                                       20


<PAGE>

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



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

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

(b) Reports on Form 8-K:

     Form 8-K  dated  April  16,  1998  announcing  first  quarter  1998 results
       and  containing  forward-looking statements.


                                       21


<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 31, 1998                               /S/  BRIAN W. BETHERS
    ---------------                       ----------------------------------
          Date                            Brian W. Bethers
                                          Senior  Vice   President
                                          and   Chief    Financial
                                          Officer (duly authorized
                                          officer     and    chief
                                          financial officer)




                                       22