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 SEPTEMBER 11, 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 October
16, 1998, was 33,659,617.



<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 11, 1998 and September 12, 1997                 2

                  Condensed Consolidated Balance Sheets -
                    As of September 11, 1998 and January 2, 1998              3

                  Condensed Consolidated Statements of Cash Flows -
                    For the Thirty-Six Weeks Ended September 11, 1998 
                    and September 12, 1997                                    4

                  Condensed Consolidated Statement of Shareholders' 
                    Deficit - For the Thirty-Six Weeks Ended 
                    September 11, 1998                                        5

                  Notes to Condensed Consolidated Financial Statements      6-8

                  Management's Discussion and Analysis of Financial 
                    Condition and Results of Operations                    9-21

                  Quantitative and Qualitative Disclosure About 
                    Market Risk                                             n/a

PART II.          OTHER INFORMATION AND SIGNATURE:

                  Legal Proceedings                                          22

                  Changes in Securities and Use of Proceeds                  22

                  Defaults Upon Senior Securities                            22

                  Submission of Matters to a Vote of Security Holders        22

                  Other Information                                          22

                  Exhibits and Reports on Form 8-K                           23

                  Signature                                                  24

                  Computations of Income Per Common Share                 25-26


                                       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            THIRTY-SIX WEEKS ENDED
                                                      ------------------------------- -------------------------------
                                                         SEPT. 11,      SEPT. 12,       SEPT. 11,      SEPT. 12,
                                                           1998           1997             1998           1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>             <C>             <C>    
REVENUES                                                     $362.2         $340.7          $962.1          $896.4 
---------------------------------------------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES
    Cost of sales                                             107.4          100.3           284.6           260.6 
    Payroll and benefits                                      102.1           92.4           287.5           264.0 
    Rent                                                       52.7           51.0           147.0           141.1 
    Royalties                                                   7.9            7.3            20.8            18.7 
    Depreciation and amortization                              13.6           12.4            39.1            36.5 
    General and administrative                                 12.2           12.6            39.3            37.1 
    Other                                                      31.1           28.1            88.1            83.9 
---------------------------------------------------------------------------------------------------------------------
       Total operating costs and expenses                     327.0          304.1           906.4           841.9 
---------------------------------------------------------------------------------------------------------------------

OPERATING PROFIT                                               35.2           36.6            55.7            54.5 
    Interest expense                                           (9.3)          (9.2)          (27.7)          (27.6)
    Interest income                                             0.7            0.7             2.0             2.5 
---------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                     26.6           28.1            30.0            29.4 
Provision for income taxes                                      8.1            9.2             9.2             9.7 
---------------------------------------------------------------------------------------------------------------------
NET INCOME                                                   $ 18.5         $ 18.9          $ 20.8          $ 19.7 
---------------------------------------------------------------------------------------------------------------------

INCOME PER COMMON SHARE:
    Basic                                                    $ 0.55         $ 0.54          $ 0.61          $ 0.57 
    Diluted                                                  $ 0.52         $ 0.52          $ 0.58          $ 0.54 

Weighted Average Common Shares Outstanding:
    Basic                                                      34.1           34.7            34.2            34.6 
    Diluted                                                    35.7           36.6            35.8            36.4 

</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>
                                                                                  SEPT. 11,           JANUARY 2,
                                                                                     1998                1998
------------------------------------------------------------------------------ ----------------- -- ----------------
<S>                                                                                  <C>                 <C>  
                                   ASSETS

Current assets:
   Cash and cash equivalents                                                          $  79.1            $   78.1 
   Accounts receivable, net                                                              27.7                24.5 
   Inventories                                                                           43.1                41.1 
   Deferred income taxes                                                                 14.5                11.5 
   Prepaid rent                                                                           7.5                 7.0 
   Other current assets                                                                   6.3                 7.0 
------------------------------------------------------------------------------ ----------------- -- ----------------
   Total current assets                                                                 178.2               169.2 

Property and equipment, net                                                             302.0               279.9 
Intangible assets                                                                        21.3                22.1 
Deferred income taxes                                                                    51.2                56.4 
Other assets                                                                             21.9                20.4 
------------------------------------------------------------------------------ ----------------- -- ----------------
   Total assets                                                                       $ 574.6             $ 548.0 
------------------------------------------------------------------------------ ----------------- -- ----------------


                    LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                                   $  86.2             $  72.2 
   Accrued payroll and benefits                                                          40.9                46.0 
   Accrued interest payable                                                              12.1                 4.8 
   Current portion of long-term debt                                                      1.1                 1.0 
   Other current liabilities                                                             50.0                41.5 
------------------------------------------------------------------------------ ----------------- -- ----------------
   Total current liabilities                                                            190.3               165.5 

Long-term debt                                                                          406.1               405.8 
Other liabilities                                                                        52.4                52.9 
------------------------------------------------------------------------------ ----------------- -- ----------------
   Total liabilities                                                                    648.8               624.2 

Common stock, no par value,  100 million shares  authorized,  
   35,678,411  shares issued as of September 11,1998 and 
   34,733,815 shares issued as of January 2, 1998                                         ---                 --- 
Contributed deficit                                                                    (106.5)             (107.7)
Retained earnings                                                                        55.9                35.1 
Accumulated other comprehensive income                                                   (0.3)               (0.1)
Treasury stock - 1,795,510 shares at September 11, 1998
   and 253,100 shares at January 2, 1998                                                (23.3)               (3.5)
------------------------------------------------------------------------------ ----------------- -- ----------------
   Total shareholders' deficit                                                          (74.2)              (76.2)
------------------------------------------------------------------------------ ----------------- -- ----------------
   Total liabilities and shareholders' deficit                                         $ 574.6            $ 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>
                                                                                      THIRTY-SIX WEEKS ENDED
                                                                               --------------------------------------
                                                                                  SEPT. 11,            SEPT. 12,
                                                                                    1998                 1997
------------------------------------------------------------------------------ ----------------- -- -----------------
<S>                                                                                   <C>                 <C>   

OPERATING ACTIVITIES
   Net income                                                                          $ 20.8               $ 19.7 
   Adjustments to reconcile net income to cash from operations:
     Depreciation and amortization                                                       40.5                 37.8 
     Amortization of deferred financing costs                                             0.9                  0.9 
     Income taxes                                                                         2.2                 12.8 
     Other                                                                                4.5                  2.6 

     Working capital changes:
       Decrease (increase) in accounts receivable                                         2.6                 (1.6)
       Increase in inventories                                                           (2.5)                (0.4)
       Increase in other current assets                                                  (0.7)                (1.5)
       Increase (decrease) in accounts payable and accruals                              22.6                (25.9)
------------------------------------------------------------------------------ ----------------- -- -----------------
   Cash provided by operations                                                           90.9                 44.4 

INVESTING ACTIVITIES
   Capital expenditures                                                                 (65.6)               (45.0)
   Other, net                                                                            (3.8)                (7.7)
------------------------------------------------------------------------------ ----------------- -- -----------------
   Cash used in investing activities                                                    (69.4)               (52.7)

FINANCING ACTIVITIES
   Repayments of long-term debt                                                          (0.9)                (1.0)
   Issuance of long-term debt                                                             1.4                  --- 
   Proceeds from stock issuances                                                          2.5                  2.2 
   Payment to Host Marriott Corporation for Marriott
       International options and deferred shares                                         (3.5)                (2.2)
   Purchases of treasury stock                                                          (19.8)                (1.6)
   Foreign currency translation adjustments                                              (0.2)                (0.1)
------------------------------------------------------------------------------ ----------------- -- -----------------
   Cash used in financing activities                                                    (20.5)                (2.7)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                          1.0                (11.0)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           78.1                104.2 
------------------------------------------------------------------------------ ----------------- -- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $ 79.1               $ 93.2 
------------------------------------------------------------------------------ ----------------- -- -----------------
</TABLE>




            See notes to condensed consolidated financial statements.

                                       4


<PAGE>

HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT (UNAUDITED)
THIRTY-SIX WEEKS ENDED SEPTEMBER 11, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
                                                                                           ACCUMULATED
  COMMON                                                                                      OTHER
  SHARES                                             COMMON     CONTRIBUTED   RETAINED    COMPREHENSIVE    TREASURY
OUTSTANDING                                           STOCK       DEFICIT     EARNINGS        INCOME         STOCK      TOTAL
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
<C>                          <S>                      <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                             ---           ---        20.8           ---            ---        20.8 
                 Foreign currency translation
  ---             adjustments                           ---           ---         ---          (0.2)           ---        (0.2)
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
  ---           Total comprehensive income              ---           ---        20.8          (0.2)           ---        20.6 

              Common stock issued for
  0.3            employee stock and option plans        ---           2.5         ---           ---            ---         2.5  
              Payment to Host Marriott Corporation
                for Marriott International options
  ---           and deferred shares                     ---          (3.5)        ---           ---            ---        (3.5)
 (1.5)        Treasury stock purchases                  ---           ---         ---           ---          (19.8)      (19.8)
  0.6         Deferred compensation                     ---           2.2         ---           ---            ---         2.2 
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
 33.9       BALANCE, SEPTEMBER 11, 1998             $   ---       $(106.5)    $  55.9       $  (0.3)       $ (23.3)    $ (74.2)
----------- --------------------------------------- ---------- -------------- ---------- ----------------- ---------- -----------
</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 September 11, 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
     common   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 third quarter of 1998,  there were  approximately  1,082,000
     restricted share awards  outstanding  under both a new executive  long-term
     incentive plan ("LTIP") and a pre-existing plan.

     During the third quarter of 1998, the Company's Board of Directors approved
     a new executive  long-term incentive plan ("LTIP").  Approximately  674,000
     new  restricted  share  awards were issued  under the LTIP during the third
     quarter of 1998.  These new  restricted  share  awards will  expire  during
     fiscal  years  2001  through  2005.  Under the LTIP,  compensation  expense
     consists of an annual time-based  component as well as a  performance-based
     component. The annual time-based expense is calculated using the fair value
     of the shares on the date of issuance, discounted for vesting restrictions,
     and is contingent on continued employment. The performance-based expense is
     calculated  using the fair  value of the  shares  on the date of  issuance,
     discounted  for vesting  restrictions,  and is  contingent  upon  continued
     employment.  The vesting,  and corresponding  compensation  expense, of the
     performance-based shares can be accelerated from a maximum 7-year period to
     a minimum 3-year period by the attainment of certain performance criteria.

     Restricted share awards  outstanding  under the  pre-existing  plan totaled
     approximately  408,000 and expire at the end of fiscal year 1998. Under the
     pre-existing plan, 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. 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.  The  Company
     adopted  SFAS No.  130,  "Reporting  Comprehensive  

                                       6

<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued


     Income,"  in the  first  quarter  of 1998 and the  adoption  did not have a
     material  effect on the Company's  1998  condensed  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 must 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 were  exercisable  for one share of Host
     Marriott  Corporation's  common  stock  and one  fifth of one  share of the
     Company's common stock.

     As of September 11, 1998, the Company had issued 1,385,175 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 September 11, 1998, the Company remained  obligated to
     issue 53,010  shares of common  stock for the  remaining  unexercised  Host
     Marriott  Corporation  warrants  at a price of  $5.33  per  Company  share.
     Subsequent to the third quarter,  the Company  issued an additional  16,094
     common  shares,  receiving  $0.1  million in proceeds  from the issuance of
     these shares. The remaining warrants expired on October 8, 1998.

6.   The Company  has three  reportable  operating  segments:  airports,  travel
     plazas  and  shopping  malls  and   entertainment.   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 three operating segments are provided in the following tables.

<TABLE>
<CAPTION>
                                                     TWELVE WEEKS ENDED         THIRTY-SIX WEEKS ENDED
                                                  --------------------------  ----------------------------
                                                   SEPT. 11,     SEPT. 12,      SEPT. 11,      SEPT. 12,
                (IN MILLIONS)                        1998           1997          1998           1997
                ------------------------------------------------------------------------------------------
                  <S>                                  <C>          <C>            <C>           <C>  

                REVENUES:
                  Airports                           $ 245.3       $ 230.0         $ 684.3       $ 634.7 
                  Travel plazas                        101.7          97.8           232.4         223.3 
                  Shopping malls and
                  entertainment                         15.2          12.9            45.4          38.4 
                ------------------------------------------------------------------------------------------
                Total segment revenues               $ 362.2       $ 340.7         $ 962.1       $ 896.4 
                ------------------------------------------------------------------------------------------

                OPERATING PROFIT:(1)
                  Airports                           $  28.3       $  31.1         $  72.4       $  69.2 
                  Travel plazas                         17.9          17.1            20.0          19.4 
                  Shopping malls and  
                  entertainment                          1.2           1.0             2.6           3.0
                ------------------------------------------------------------------------------------------
                Total segment operating profit       $  47.4       $  49.2         $  95.0       $  91.6 
                ------------------------------------------------------------------------------------------
<FN>

                (1)   Before general and administrative expenses.
</FN>
</TABLE>
                                       7


<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued

<TABLE>
<CAPTION>
                                                                       SEPT. 11,            JANUARY 2,
                 (IN MILLIONS)                                            1998                 1998
                 ---------------------------------------------------------------------------------------------
                   <S>                                                   <C>                     <C>  

                 ASSETS:
                   Airports                                              $ 307.7              $ 272.9
                   Travel plazas                                            90.4                 95.7
                   Shopping malls and entertainment                         28.0                 32.9
                 ---------------------------------------------------------------------------------------------
                 Total segment assets                                    $ 426.1              $ 401.5
                 ---------------------------------------------------------------------------------------------
</TABLE>


                  Reconciliations of segment data to consolidated data follow:

<TABLE>
<CAPTION>
                                                          TWELVE WEEKS ENDED           THIRTY-SIX WEEKS ENDED
                                                      ---------------------------   ------------------------------
                                                       SEPT. 11,     SEPT. 12,       SEPT. 11,      SEPT. 12,
                 (IN MILLIONS)                           1998           1997           1998            1997
                 -----------------------------------------------------------------------------------------------
                  <S>                                      <C>            <C>            <C>            <C> 

                 OPERATING PROFIT:
                   Segments                               $ 47.4         $ 49.2         $ 95.0          $ 91.6 
                   General and administrative
                   expenses                                (12.2)         (12.6)         (39.3)          (37.1)
                 -----------------------------------------------------------------------------------------------
                 Total operating profit                   $ 35.2         $ 36.6         $ 55.7          $ 54.5 
                 -----------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
                                                                                 SEPT. 11,      JANUARY 2,
                 (IN MILLIONS)                                                      1998           1998
                 -------------------------------------------------------------------------------------------
                  <S>                                                                <C>             <C>  

                 ASSETS:
                   Segments                                                          $ 426.1        $ 401.5
                   Corporate and other                                                 148.5          146.5
                 -------------------------------------------------------------------------------------------
                 Total assets                                                        $ 574.6        $ 548.0
                 -------------------------------------------------------------------------------------------
</TABLE>


                                       8

<PAGE>

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


RESULTS OF OPERATIONS

The  Company's  third quarter  results were  impacted by the Northwest  Airlines
pilots' strike,  which  temporarily  reduced  operations at Northwest  Airlines'
three  principal  hubs--Minneapolis/St.  Paul,  Detroit  and  Memphis  where the
airline accounts for 75%-80% of total  enplanements.  The strike's impact on the
Company was  significant,  as  Minneapolis  and Detroit are among the  Company's
largest revenue-producing locations. The pilots' strike occurred during the last
two weeks of the quarter, and was in effect during the Labor Day weekend, one of
the busiest travel periods of the year.  Passenger traffic on Northwest Airlines
began to decline  several  weeks prior to the strike as  passengers  anticipated
disruptions in flight service. Ultimately, the Company closed half of its stores
at these airports and temporarily laid off more than 800 workers, resulting in a
substantial  revenue  decline for those  locations  in the last two weeks of the
quarter.  The  pilots'  strike  ended  two weeks  into the  fourth  quarter  and
operations  returned to 95% of pre-strike  levels within one month after the end
of the third quarter.

The  slowdown  in the Asian  economy  depressed  Asian  traffic  and  negatively
affected the Company's  duty-free  operations in several key gateway airports in
the United  States,  as well as  international  operations  in Australia and New
Zealand. While the impact of the slowdown has been building during the year, due
to the seasonality of the Company's business,  the impact was not material until
the third quarter. The impact of a strengthening U.S. dollar also negatively 
affected international operating results.

The Northwest  Airlines' strike and the Asian economic slowdown had an estimated
combined  negative effect on earnings per diluted share of $0.05, or 10%, in the
third quarter of 1998. The negative  impact on earnings can be attributed  about
equally to these two factors.

REVENUES.  Despite  the  negative  impacts of the  pilot's  strike and the Asian
economic slowdown, revenues for the twelve weeks ("quarter") ended September 11,
1998  increased  by 6.3% to $362.2  million  from the same period in 1997,  with
revenue growth  experienced in all business  lines.  Revenues for the thirty-six
weeks ("first three  quarters") ended September 11, 1998 totaled $962.1 million,
an increase of 7.3%.  Revenues were driven by strong growth in domestic  airport
food and beverage  concessions,  particularly  from sales at locations  recently
opening new branded concepts.  An increase in enplanements,  customer traffic on
tollroads,  the opening of two new mall  contracts in the fourth quarter of 1997
and the conversion of the Miami International Airport contract from a management
agreement  to an  operating  agreement  during  the  second  quarter of 1998 all
contributed to overall revenue growth.

<TABLE>
<CAPTION>
                                                      TWELVE WEEKS ENDED         THIRTY-SIX WEEKS ENDED
                                                   --------------------------  ----------------------------
                                                    SEPT. 11,    SEPT. 12,       SEPT. 11,     SEPT. 12,
         (IN MILLIONS)                                 1998        1997             1998         1997
         --------------------------------------------------------------------------------------------------
          <S>                                            <C>          <C>             <C>           <C> 

         REVENUES BY BUSINESS LINE
             AIRPORTS:
                Domestic                                $226.5       $211.6           $636.0       $588.4
                International                             18.8         18.4             48.3         46.3
         --------------------------------------------------------------------------------------------------
                   Total airports                        245.3        230.0            684.3        634.7
         --------------------------------------------------------------------------------------------------
             TRAVEL PLAZAS                               101.7         97.8            232.4        223.3
             SHOPPING MALLS AND ENTERTAINMENT             15.2         12.9             45.4         38.4
         --------------------------------------------------------------------------------------------------
             Total revenues                             $362.2       $340.7           $962.1       $896.4
         --------------------------------------------------------------------------------------------------
</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
14.1% and  15.9%  for the  third  quarter  and  first  three  quarters  of 1998,
respectively,  compared  to a year ago,  the  majority  of which  related to the
continued  expansion  of branded  revenues at  airports  and  revenues  from 

                                       9

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


new  shopping  mall food  courts,  which  consist  primarily of branded food and
beverage. 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 10.5% of total  revenues  for the first three
quarters of 1998.

AIRPORTS

Airport concession revenues were up 6.7% to $245.3 million for the third quarter
of 1998  compared to a year ago, with domestic  airport  concession  revenues up
7.0% and international airport revenues up 2.2%.  International revenues reflect
increased revenues at the Montreal  International Airport - Dorval in Canada and
the  Schiphol  Airport in the  Netherlands  offset  principally  by the negative
impact of exchange rate  fluctuations and also by weak enplanements in Australia
and New Zealand stemming from the Asian economic slowdown.

Revenue growth at comparable domestic airport locations, which comprise over 85%
of total domestic airport revenues,  grew a solid 6.7% over the third quarter of
1997.  Passenger  enplanements  at  comparable  domestic  airports  were  up  an
estimated  3.6% over last year's third quarter  while RPE grew 3.0%.  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 third  quarter of 1998,  the Chicago,  St.
Louis,  Miami,  Houston,  Minneapolis/St.  Paul,  Memphis  and  Detroit  airport
contracts  were  considered  noncomparable.  In March 1998,  the FAA  forecasted
annual U.S.  passenger  enplanement  growth of U.S. carriers of 3.7% through the
year 2009. Third quarter 1998 enplanement  growth was below the FAA's long range
forecast.

RPE is the  primary  measure  of  how  effective  the  Company  is at  capturing
potential customers and increasing customer spending. Moderate increases in menu
prices,  the opening of new branded concepts at a number of the Company's larger
locations,  including Los Angeles, San Francisco,  Minneapolis and Cleveland and
various  real estate  maximization  efforts  contributed  to the 3.0% RPE growth
rate.  Branded  revenues in airports  showed an increase of 18.0% when comparing
the third quarter of 1998 to the same period in 1997.  Airport branded  revenues
in the third  quarter  increased  to $76.0  million,  or 31.0% of total  airport
revenues,  compared with $64.4 million,  or 28.0% of total airport  revenues,  a
year ago.

Airport  concession  revenues were up 7.8% to $684.3 million for the first three
quarters  of 1998  compared  to a year ago,  with  domestic  airport  concession
revenues up 8.1% and  international  airport  concession  revenues up 4.3%.  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 principally  offset by the negative
impact of exchange rate  fluctuations and also by weaker  enplanements  stemming
from the Asian economic slowdown.

Revenue  growth for the first  three  quarters  of 1998 at  comparable  domestic
airport  locations grew a solid 8.3% over a year ago and passenger  enplanements
at comparable  domestic  airports were up an estimated 2.6% while RPE grew 5.6%.
During the first three quarters of 1998, the Chicago, St. Louis, Miami, Houston,
Columbus,  Minneapolis/St.  Paul,  Memphis and Detroit  airport  contracts  were
considered noncomparable.

Branded  revenues in airports  showed an  increase of 18.7% when  comparing  the
first  three  quarters  of 1998 to the  same  period  in 1997.  Airport  branded
revenues in the first three  quarters of 1998  increased to $207.3  million,  or
30.3% of total airport revenues, compared with $174.7 million, or 27.5% of total
airport revenues, in the first three quarters of 1997.

During the first quarter of 1998, the Company  announced a new ten-year domestic
airport contract at the Southwest  Florida  International  Airport in Fort Myers
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. The Company, along with its 51% Malaysian joint
venture  partner,  Dewina Berhad,  was awarded  several  facilities at the Kuala
Lumpur  airport.  The Company was 

                                       10

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


awarded two new concession  facilities at the Vancouver  International  Airport,
adding to the Company's existing operations in the domestic terminal.

During the second quarter of 1998, the Company announced that it was selected as
the food and  beverage  master  developer/operator  at the  Miami  International
Airport  until the year 2007.  Prior to this  award,  the Company  operated  the
existing  generic  facilities  for Dade County under a management  agreement and
recorded  management  fees. The Company records  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 an  agreement  with Cool  Planet,  Inc., a subsidiary  of Planet
Hollywood  International,  Inc.,  to bring a new ice cream and  dessert  concept
called Cool Planet to the Company's  venues.  The Company plans to open up to 10
Cool Planet locations, five likely within the next year.

During the third  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
announced it was selected to take over food and beverage  operations  in October
of 1998 at the West Palm  Beach  Airport.  Two  contracts  expired  and were not
renewed  during the third quarter of 1998,  which included the food and beverage
operations  at the  Houston  International  Airport  as well as  gift  and  news
operations in the San Francisco International Airport's south terminal.

After the third  quarter of 1998,  the  Company  announced  it was  selected  to
develop and operate  approximately  20,000 square feet of  concessions  space at
Shenzhen Huangtian International Airport located in Shenzhen,  People's Republic
of China,  with projected  annual revenues of $4.0 million.  The Company,  along
with its joint venture partner Shenzhen  Airport  Company,  Ltd., was awarded an
exclusive  fifteen-year  lease with  operations  commencing  in early 1999.  The
Shenzhen  International  Airport is the fifth  largest  airport  in China.  This
contract  brings the Company's  total  international  contracts to nine in seven
countries.  Also  occurring  after the end of the  third  quarter,  the  Company
acquired Sky Gifts,  Inc., an operation of eight retail locations at the Phoenix
Sky Harbor  Airport and a deal was finalized  with Delta Airlines to operate the
food and beverage concessions at 17 Crown Rooms across the United States.

TRAVEL PLAZAS

Travel plaza  concession  revenues for the third quarter of 1998 were up 4.0% to
$101.7 million when compared to the same period in 1997. Revenues for the travel
plazas segment grew 4.1% to $232.4 million for the first three quarters 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  led the Energy
Department  and the Travel  Institute  of America  earlier this year to forecast
strong growth in vehicle  miles  traveled for the summer of 1998 of 3.9% and 3%,
respectively.  The  introduction  of  several  new  branded  locations,  such as
Starbucks  and Pizza Hut  Express,  also  contributed  to revenue  growth on the
tollroads.

The Company  started to introduce  the  Starbucks  concept to a number of travel
plazas during the first three quarters of 1998 in an effort to increase customer
capture and enhance real estate productivity on the tollroads.  Travel plazas in
Maryland, Pennsylvania and New York are currently operating six Starbucks kiosks
and seven more Starbucks locations are planned to open in 1999.

                                       11


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


SHOPPING MALLS AND ENTERTAINMENT

Shopping malls and entertainment  concession  revenues,  primarily consisting of
merchandise,  food and beverage sales at food courts in shopping  malls,  sports
arenas, and other tourist  attractions,  increased by 17.8% to $15.2 million for
the third quarter of 1998 when compared with the third quarter of 1997. Revenues
for the shopping malls and entertainment segment grew 18.2% to $45.4 million for
the first  three  quarters of 1998  compared  to the same period in 1997.  These
increases  can be attributed to the opening of  concessions  at Grapevine  Mills
Mall and the Vista  Ridge Mall in the  fourth  quarter of 1997 as well as strong
performance 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 and the first  phase  opened on October 9,
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  located in New York's  Times  Square.  This
project will be one of the  Company's  largest mall and  entertainment  projects
with annual sales  expected to exceed $15.0  million  once  construction  of the
units has been completed in late 1999.

After the third quarter of 1998, the Company  announced  three new shopping mall
food court contracts with combined  projected  annual revenues of  approximately
$30 million.  The first  contract is a 12-year deal with The Taubman  Company to
operate the food and beverage  concessions  in a 7,000 square foot food court in
the 1.0 million square foot MacArthur Center in Norfolk, Virginia,  beginning in
March of 1999. The second contract is a ten-year deal with Glimcher Realty Trust
to operate the food and beverage  concessions in a 10,800 square foot food court
in the 1.3 million  square foot Jersey  Gardens Mall in  Elizabeth,  New Jersey,
beginning in the late Fall of 1999.  The third  contract is a ten-year deal with
Michael Swerdlow Companies, Inc. to operate the food and beverage concessions in
a 9,000  square foot food court in the 1.4 million  square foot  Dolphin Mall in
Miami-Dade County, Florida, beginning in late 1999.

Over the past two years,  the Company has secured ten  shopping  mall food court
contracts  with eight  leading  developers  that are expected to have  aggregate
annualized  revenues of nearly $100 million.  To date, mall food court contracts
have average terms of ten years or more. Discussions are underway with many more
mall developers, including two potential projects in Europe.

OPERATING  COSTS AND EXPENSES.  Total  operating  costs and expenses were $327.0
million for the third quarter of 1998, or 90.3% of total revenues, compared with
$304.1 million for the third quarter of 1997, or 89.3% of total revenues.  Total
operating  costs and expenses  for the first three  quarters of 1998 were $906.4
million,  or 94.2% of total revenues,  compared with $841.9 million, or 93.9% of
total  revenues for the first three  quarters of 1997.  The decreased  operating
profit  margins for the third quarter and first three quarters of 1998 primarily
reflect the impact of the Northwest  Airlines' strike and the economic  slowdown
in Asia.

Cost of sales for the third  quarter of 1998  increased  7.1% to $107.4  million
when  compared  to the same  period in 1997.  Cost of sales for the first  three
quarters of 1998  increased  9.2% to $284.6 million when compared with the first
three  quarters  of  1997.  Cost of  sales as a  percentage  of  total  revenues
increased 20 basis points and 50 basis points during the third quarter and first
three quarters of 1998, respectively.  The margins are influenced by a mix shift
to higher cost of product concepts, such as Starbucks,  and the lowering of menu
prices to levels  comparable to those charged at street locations as part of the
new  contracts  at Chicago  and St.  Louis in 1998.  In  addition,  the  Company
experienced  commodity  cost  increases  in  produce  and  dairy  products  when
comparing the third quarter of 1998 to the same period in 1997.  Commodity  cost
increases in produce,  dairy and premium  coffee beans were incurred  during the
first three quarters of 1998 compared to the same period a year ago.

Payroll and benefits  totaled $102.1 million during the third quarter of 1998, a
10.5%  increase over the third quarter of 1997.  Payroll and benefits  increased
8.9% to $287.5  million during the first three quarters of 1998 when compared to
the same period in 1997.  Payroll and benefits as a percentage of total revenues
increased  110 

                                       12

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


basis  points for the third  quarter  and 40 basis  points  for the first  three
quarters  of 1998,  reflecting  the impact of the  Northwest  Airlines'  strike,
which, despite the Company's short-term layoffs,  more than offset benefits from
the use of labor  scheduling  software and the  implementation  of store manager
training programs. In addition, payroll margins increased due to construction of
new concessions at several airports and due to slight  tightening in local labor
markets.

Rent expense  totaled $52.7 million and $147.0 million for the third quarter and
first  three  quarters  of 1998,  an  increase  of 3.3% and 4.2% above the third
quarter  and first  three  quarters  of 1997,  respectively.  Rent  expense as a
percentage of total revenues  improved 40 basis points for the third quarter and
50 basis points for the first three  quarters of 1998 and can be  attributed  to
sales  increases  on  contracts  with  fixed  rental  rates  and new or  renewed
contracts with favorable rent margins.

Royalties  expense  for the third  quarter  and  first  three  quarters  of 1998
increased  by 8.2% and 11.2% to $7.9  million and $20.8  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 third  quarter and
first three quarters of 1998.  These increases in royalties  expense reflect the
Company's  continued   introduction  of  branded  concepts  to  its  concessions
operations.  Royalties expense as a percentage of branded sales totaled 5.8% and
6.2% in the third quarter of 1998 and 1997,  respectively,  and totaled 5.9% and
6.3% in the first three  quarters 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  $0.4  million of corporate
depreciation  on  property  and  equipment  which is  included  in  general  and
administrative  expenses,  was  $13.6  million  for the third  quarter  of 1998,
compared to $12.4 million,  excluding $0.5 million of corporate  depreciation on
property  and  equipment,  for the  third  quarter  of  1997.  Depreciation  and
amortization for the first three quarters of 1998 and 1997 totaled $39.1 million
and  $36.5  million,  excluding  $1.4  million  and $1.2  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 $12.2 million for the third quarter of
1998,  a  decrease  of  3.2%  from a year  ago.  Lower  executive  benefit  plan
compensation   expense   contributed   towards   this   decrease.   General  and
administrative  expenses for the first three  quarters of 1998 increased 5.9% to
$39.3  million  compared to the first three  quarters of 1997.  The  increase in
general and  administrative  expenses for the first three quarters was 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 three
quarters of 1998, approximately $0.8 million in external costs and approximately
$0.5  million of internal  costs were  included  in general  and  administrative
expenses relating to the Company's Year 2000 compliance program.

Other  operating  expenses,   which  includes  utilities,   casualty  insurance,
equipment  maintenance,  trash removal and other  miscellaneous  expenses,  were
$31.1  million for the third  quarter of 1998, a 10.7%  increase  from the third
quarter of 1997.  Other  operating  expenses  increased  5.0% in the first three
quarters of 1998 to $88.1  million  compared to a year ago. As a  percentage  of
total revenues, other operating expenses increased 30 basis points for the third
quarter and decreased 20 basis points for the first three  quarters of 1998 when
compared with the same periods in 1997.

OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses  discussed  above,  including the Northwest  Airlines' strike and Asian
slowdown,  operating  profit decreased 3.8% to $35.2 million or 9.7% of revenues
for the third  quarter of 1998,  from $36.6 million or 10.7% of revenues for the
third  quarter of 1997.  This  decrease was largely due to an estimated  loss of
$2.6  million of  operating  profit and $3.9  million in 

                                       13

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


sales  relating to the effects of the Northwest  Airlines'  strike and the Asian
economic slowdown.  Excluding the effects of this strike and the Asian slowdown,
the operating profit margin would have been 10.3%, down 40 basis points from the
third  quarter of 1997.  This decrease  resulted  from  increases in the cost of
sales and payroll margins, offset by a lower administrative cost margin.

Operating  profit improved 2.2% to $55.7 million for the first three quarters of
1998, or 5.8% of revenues, compared with $54.5 million, or 6.1% of revenues, for
the same  period in 1997.  The  operating  profit  margin  for the  first  three
quarters of 1998 reflects the negative impact of the Northwest  Airlines' strike
and the economic slowdown in Asia.

<TABLE>
<CAPTION>
                                                           TWELVE WEEKS ENDED         THIRTY-SIX WEEKS ENDED
                                                       ---------------------------  ----------------------------
                                                         SEPT. 11,    SEPT. 12,       SEPT. 11,    SEPT. 12,
     (IN MILLIONS)                                          1998         1997           1998          1997
     -----------------------------------------------------------------------------------------------------------
         <S>                                              <C>          <C>             <C>           <C>

     OPERATING PROFIT BY BUSINESS LINE (1)
         AIRPORTS:
            Domestic                                         $ 26.0      $ 28.9          $ 69.0        $ 65.8 
            International                                       2.3         2.2             3.4           3.4 
     -----------------------------------------------------------------------------------------------------------
               Total airports                                  28.3        31.1            72.4          69.2 
     -----------------------------------------------------------------------------------------------------------
         TRAVEL PLAZAS                                         17.9        17.1            20.0          19.4 
         SHOPPING MALLS AND ENTERTAINMENT                       1.2         1.0             2.6           3.0 
     -----------------------------------------------------------------------------------------------------------
         Total operating profit                              $ 47.4      $ 49.2          $ 95.0        $ 91.6 
     -----------------------------------------------------------------------------------------------------------
<FN>
        (1)  Before general and administrative expenses.
</FN>
</TABLE>


Operating profit margins  decreased for the airports  business line, to 11.5% of
airport  revenues,  before general and  administrative  expenses,  for the third
quarter of 1998 as compared with 13.5% of airport revenues for the third quarter
of 1997. The airport operating profit margin,  before general and administrative
expenses, decreased 30 basis points to 10.6% in the first three quarters of 1998
compared  to the same period in 1997.  The  decreases  in the airport  operating
profit margins primarily reflect the negative impact of the Northwest  Airlines'
strike and the slowdown in the Asian economy.

The travel plaza  operating  profit margin,  before  general and  administrative
expenses,  increased 10 basis points to 17.6% for the third  quarter of 1998 and
decreased  10 basis  points to 8.6% for the first three  quarters  of 1998.  The
slight decrease in the travel plaza operating  profit margin for the first three
quarters 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,  increased to 7.9% for the third quarter of
1998 from 7.8% in the third  quarter of 1997 and decreased to 5.7% for the first
three  quarters of 1998 from 7.8% reported in the first three  quarters 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 new
mall  contracts,  the  negative  impact of the Asian  slowdown  at one  Hawaiian
location and costs associated with the closing of an  entertainment  location in
Florida.

INTEREST EXPENSE.  Interest expense increased slightly to $9.3 million and $27.7
million for the third  quarter and first three  quarters of 1998,  respectively,
compared to $9.2 million and $27.6 million for the  comparable  periods in 1997.
These  minimal  variances  reflect  the 9.5% fixed rate of  interest on the $400
million of Senior  Notes and  additional  debt  incurred  relating to two of the
Company's joint ventures.

INTEREST  INCOME.  Interest  income  remained flat at $0.7 million for the third
quarter  of 1998  compared  with the  third  quarter  of 1997.  Interest  income
decreased to $2.0  million for the first three  quarters of 1998  compared  with

                                       14


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


$2.5  million  for the same  period in 1998.  The first  three  quarters 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.

INCOME  TAXES.  The provision for income taxes for the third quarter of 1998 and
1997 was $8.1 million and $9.2  million,  reflecting  an  effective  tax rate of
30.5% and 32.7% for the respective quarters.  The provision for income taxes for
the first  three  quarters of 1998 and 1997 was $9.2  million and $9.7  million,
respectively,  reflecting  an  effective  tax rate of 30.7%  and  33.0%  for the
respective  periods.  The  effective  tax  rates  reflect  the  reversal  of the
valuation   allowance  for  the  benefit  of  recognizing  certain  tax  credits
previously thought to be unrealizable.

NET INCOME AND INCOME PER COMMON SHARE. Net income for the third quarter of 1998
decreased  2.1% to $18.5  million  compared  with  $18.9  million  for the third
quarter of 1997.  Diluted income per common share remained flat at $0.52 for the
third quarter of 1998  compared to the same period in 1997, as weighted  average
shares declined  primarily due to the Company's share  repurchase  program.  Net
income for the first three quarters of 1998 increased 5.6% to $20.8 million,  or
$0.58 per diluted common share,  compared with $19.7 million for the same period
in 1997,  or $0.54 per diluted  common share.  Net income  reflects the negative
impact of the  Northwest  Airlines'  strike and  slowdown in the Asian  economy,
offset by favorable reductions in the corporate tax rates.

WEIGHTED  AVERAGE  SHARES  OUTSTANDING.  The weighted  average  number of common
shares outstanding used to calculate basic income per common share for the third
quarter of 1998 and 1997 was 34.1 million and 34.7  million,  respectively.  The
weighted average number of common shares  outstanding used to calculate  diluted
income per common share for the third  quarter of 1998 and 1997 was 35.7 million
and 36.6 million, respectively.

The weighted average number of common shares outstanding used to calculate basic
income per common  share for the first three  quarters 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 three  quarters of 1998 and 1997 totaled  35.8  million and 36.4  million,
respectively.

As of the end of the third quarter 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 1.5 million shares purchased by the Company under
the share  repurchase  program in the first three  quarters  of 1998,  partially
offset by the issuance of shares under the  Company's  Employee  Stock  Purchase
Plan and  Comprehensive  Stock Plan,  which includes shares issued under the new
executive long-term incentive plan.



                                       15



<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  and 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 May 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 three  quarters of 1998 and in compliance  with the
Facilities,  Host  International  paid $5.6 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
September 11, 1998 and throughout  the twelve weeks and  thirty-six  weeks ended
September 11, 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  $66.7  million for the first three
quarters  of 1998 as  compared  with $61.0  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.

                                       16

<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 in new markets,  to expand or reposition  existing
facilities  and to maintain the quality and  operations of existing  facilities.
The Company's capital  expenditures in the first three quarters of 1998 and 1997
totaled $65.6  million and $45.0  million,  respectively.  For the entire fiscal
year  of  1998,  the  Company  presently  expects  to make  capital  expenditure
investments of approximately $70.0 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
existing cash balances and operating cash flow.

The Company's  cash used in financing  activities in the first three quarters of
1998 was $20.5 million,  compared with cash used in financing activities of $2.7
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 three quarters of
1998 totaling $11.5 million, completing the share repurchase program. During the
third quarter of 1998, the Company  announced a new 1.9 million share repurchase
program to be completed over the next two years.  The new program will be funded
by available cash and will not interfere with the Company's  growth plans. As of
the end of the third quarter of 1998 approximately 700 thousand, or $8.2 million
of  shares  had been  repurchased  under the new share  repurchase  program.  In
addition to treasury share repurchases, cash used in financing activities during
the  first  three  quarters  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,  $0.9
million of debt  repayments  and $0.2  million of foreign  currency  translation
adjustments.  Offsetting these cash outflows for financing  activities were $2.5
million of proceeds  received for the issuance of common shares  relating to the
Company's  employee  stock and option plans and $1.4 million for the issuance of
debt.

Cash used in financing activities in the first three quarters of 1997 included 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 $1.6  million of treasury  stock  repurchases,  $1.0
million of debt  repayments  and $0.1  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
$2.2 million.

Consolidated earnings before interest expense, taxes, depreciation, amortization
and other non-cash items ("EBITDA") decreased 1.8% to $49.5 million in the third
quarter of 1998.  EBITDA  increased  3.0% to $98.9  million  for the first three
quarters of 1998.  The EBITDA to revenue  margin  decreased to 13.7% compared to
14.8% in the third  quarter of 1997 and  decreased  to 10.3% for the first three
quarters of 1998 from 10.7% for the same period in 1997.  The  decreases  in the
EBITDA margin were  principally due to the Northwest  Airline's strike and Asian
slowdown.

The  annualized  cash  interest  coverage  ratio  (defined as EBITDA to interest
expense  less  amortization  of  deferred  financing  costs  for the  last  four
quarters)  was 3.4 to 1.0 as of the end of the third  quarter  of 1998  compared
with 3.1 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.


                                       17


<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           THIRTY-SIX WEEKS ENDED
                                                 -------------------------    -----------------------------
                                                 SEPT. 11,    SEPT. 12,         SEPT. 11,      SEPT. 12,
           (IN MILLIONS)                            1998         1997              1998           1997
           ------------------------------------- ----------- ------------- -- --------------- -------------
          <S>                                       <C>           <C>                <C>           <C>    

           NET INCOME                              $ 18.5        $ 18.9             $ 20.8        $ 19.7 
           Interest expense (1)                       9.3           9.2               27.7          27.6 
           Provision for income taxes                 8.1           9.2                9.2           9.7 
           Depreciation and amortization             14.0          12.9               40.5          37.7 
           Other non-cash items                      (0.4)          0.2                0.7           1.3 
           ------------------------------------- ----------- ------------- -- --------------- -------------
           EBITDA                                  $ 49.5        $ 50.4             $ 98.9        $ 96.0 
           ------------------------------------- ----------- ------------- -- --------------- -------------
<FN>
         (1) Amortization  of deferred  financing costs of $0.3 million and $0.3
             million for the third  quarter of 1998 and 1997,  respectively,  is
             included  as a  component  of  interest  expense.  Amortization  of
             deferred  financing  costs of $0.9 million and $0.9 million for the
             first three quarters of 1998 and 1997, respectively, is included in
             interest expense.
</FN>
</TABLE>


Excluding the impact of the Northwest  Airlines'  strike and the Asian slowdown,
EBITDA would have been $52.1  million,  up 3.4% over the third  quarter of 1997.
EBITDA for the first three quarters of 1998 would have been $101.5  million,  up
5.7% over the comparable period in 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 September  11,  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  $10.5 million
over  the  remaining  weighted-average  life  of the  contracts  of  3.6  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  $65.7  million  as of
September  11, 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 September 11, 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 first  three  quarters  of 1998,  the
Company  revised  its  interim  effective  tax rate to  reflect  a $3.2  million
reversal of the valuation  allowance for the benefit of recognizing  certain tax
credits that were previously considered  unrealizable.  During the third quarter
of 1997, the Company  recorded a $1.9 million  

                                       18


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


benefit  to  recognize  certain  tax  credits  that were  previously  considered
unrealizable.  The Company  anticipates tax credits during 1999 and 2000 similar
to those recognized in 1998.

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 identify and address the potential impact of
the Year 2000 problem on its 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.

An action plan was  formulated  in 1997 to address Year 2000 issues.  The action
plan focuses on the  following  areas:  (1)  information  systems,  (2) embedded
systems, including equipment that operates such items as the Company's freezers,
air  conditioning and cooling systems,  fryers and security  systems,  (3) third
party (vendor and supplier) relationships and (4) contingency planning.

Accordingly,  the Company is devoting  resources to resolve all significant Year
2000 issues in a timely manner as they are identified. The Company established a
Year 2000 Project Team, headed by the Chief  Information  Officer who reports to
the Chief  Financial  Officer.  The project  steering  team  includes  executive
management  and employees  with  expertise  from various  disciplines  including
information  technology,  finance,  internal  audit,  legal and  operations.  In
addition,  the Company has retained the services of Computer Task Group, Inc., a
New York  based  consulting  firm  with  particular  expertise  in the Year 2000
problem.

INFORMATION  SYSTEMS.  To date, the Company has  identified 23 internal  systems
that will require correction.  The Company is resolving Year 2000 issues through
replacement of equipment,  modification  of software and  replacement of certain
software  systems.  For mission critical  systems,  the Company will be engaging
third  party  experts  to  verify  Year 2000  compliance  testing.  The  Company
anticipates  that  all  mission  critical  information   technology  systems  at
corporate  headquarters,  which perform financial management processes,  will be
Year 2000 compliant by February 1999 and anticipates  that other systems will be
completed by mid-1999.

EMBEDDED  SYSTEMS.  The Company  will perform a  comprehensive  inventory of its
embedded  systems  at the  unit  level,  including  computer  equipment  used in
operations.  As of the end of the third  quarter of 1998,  an inventory had been
completed for approximately  half of the Company's  locations with the remaining
inventory  to  be  completed  by  mid-1999.   The  Company  has   contacted  all
manufacturers  of those  components  utilized  in the  operations  to  determine
whether  their  components  are Year 2000  compliant.  The  Company  intends  to
remediate or replace, as applicable,  any identified  non-compliant  systems and
expects to complete  this process by August 1999.  The quality of the  responses
received from  manufacturers,  the estimated impact of the individual  system on
the  Company,  and the ability of the Company to perform  meaningful  tests will
influence  its  decision  regarding  whether to conduct  independent  testing of
embedded systems.

THIRD-PARTY RELATIONSHIPS.  The Company has initiated formal communications with
all  suppliers  and  vendors to  determine  potential  exposure  to these  third
parties'  failure to remediate  their own Year 2000 issues.  These 

                                       19

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


contacts  have  included  the  Company's  supply  chain,   airport  authorities,
financial  institutions,  electric,  telephone and water companies.  The Company
will consider new business  relationships  with alternate  providers of products
and services if deemed necessary.

RISKS/CONTINGENCY  PLANS. As part of the Company's normal business practice,  it
maintains plans to follow during  emergency  circumstances,  some of which could
arise from Year 2000-related  problems.  The Company's  contingency planning for
the Year 2000 will address  various  alternatives  and will include  assessing a
variety of scenarios to which the Company may be required to react.  The Company
continues  to  develop  its  contingency  plans for Year 2000  issues,  and each
individual  location will develop a contingency plan for the impact of Year 2000
business interruptions. The Company operates in a large number of geographically
dispersed  locations and has a large  supplier base,  which should  mitigate any
adverse impact resulting from supplier problems.

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

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

FINANCIAL  IMPLICATIONS.  The Company  currently  estimates that external costs,
such as consulting  experts,  for its Year 2000 systems  compliance program will
total  approximately $1.5 million in 1998, $1.5 million in 1999 and $0.5 million
in  2000.  The  Company  currently   estimates  that  internal  costs,  such  as
remediation  coding  and system  support,  for Year 2000  compliance  will total
approximately  $0.7  million in 1998,  $1.1  million in 1999 and $0.4 million in
2000. Additionally, final remediation may require further capital investments to
replace  equipment  and  software.  During  the first  three  quarters  of 1998,
approximately  $0.8 million in external costs and approximately  $0.5 million in
internal  costs  were  incurred  relating  to  Year  2000  implementation.   The
anticipated costs associated with the Company's Year 2000 compliance  program do
not  include  time and costs that may be  expensed as a result of the failure of
any third parties,  including suppliers,  to become Year 2000 compliant or costs
to implement any contingency plans.

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

                                       20


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


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,  but not limited to, 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 1998 or that are  expected  to be added or renewed in 1998
and subsequent  years;  anticipated  tax credits for 1999 and 2000;  efforts and
expectations  relating to Year 2000 compliance;  anticipated  retention rates of
existing  contracts in core business lines;  capital  spending plans;  projected
cash  flows  from  certain  operating  units;   business  strategies  and  their
anticipated  results;  and  similar  statements  concerning  future  events  and
expectations that are not historical facts.

These   forward-looking   statements   are   subject  to   numerous   risks  and
uncertainties,  including  the  effects of  seasonality,  airline  and  tollroad
industry  fundamentals  and general economic  conditions  (including the current
economic  downturn in Asia),  competitive  forces within the food,  beverage and
retail  concessions  industries,  the  availability  of cash flow to fund future
capital expenditures,  government regulation and the potential adverse impact of
the Year 2000 issue on  operations.  For further  information  concerning  risks
applicable  to  operations,   see  the  Company's  Form  10-K.   Forward-looking
statements  are inherently  uncertain,  and investors must recognize that actual
results  could  differ  materially  from  those  expressed  or  implied  by  the
statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Not applicable.



                                       21

<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

     None.

ITEM 5.  OTHER INFORMATION

     None.


                                       22

<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 July 14, 1998,  which reported  under Item 5 second quarter 
        1998 results and contained  certain  forward-looking statements.


                                       23


<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

  OCTOBER 23, 1998                                  /S/  BRIAN W. BETHERS
-------------------                          ----------------------------------
                        Date                            Brian W. Bethers

                                             Senior  Vice  President and  Chief
                                             Financial Officer (duly authorized
                                             officer     and    chief
                                             financial officer)




                                       24