-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RjcXyUBGwOSwaTpGHwPVr3SWD7CXqxcGKUy9J35psrp+YIVBx7uZDQbW25O6rFxz sD2mNcSHZGz77ITgrZ9nqg== 0000950131-00-002422.txt : 20000406 0000950131-00-002422.hdr.sgml : 20000406 ACCESSION NUMBER: 0000950131-00-002422 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAMMONS JOHN Q HOTELS INC CENTRAL INDEX KEY: 0000930796 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 431695093 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-13486 FILM NUMBER: 594264 BUSINESS ADDRESS: STREET 1: 300 JOHN Q HAMMONS PKWY STE 900 CITY: SPRINGFIELD STATE: MO ZIP: 65806 BUSINESS PHONE: 4178644300 MAIL ADDRESS: STREET 1: 300 JOHN Q HAMMONS PKWY STREET 2: SUITE 900 CITY: SPRINGFIELD STATE: MO ZIP: 65806 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Amendment No. 1) (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1999. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____________ to ___________. Commission File Number 1-13486 John Q. Hammons Hotels, Inc. (Exact name of Registrant as specified in its charter)
Delaware 43-16950593 (State or other jurisdiction of incorporation or Organization) (I.R.S. Employer Identification No.) 300 John Q. Hammons Parkway, Ste. 900, Springfield, Missouri 65806 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (417) 864-4300
Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on which registered ------------------- ----------------------------------------- Class A Common Stock American Stock Exchange $.01 par value per share Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the 3,798,913 shares of Class A Common Stock held by non-affiliates of the Registrant was approximately $15,195,652 based on the closing price on the New York Stock Exchange for such stock on March 13, 2000. Number of shares of the Registrant's Class A Common Stock outstanding as of March 13, 2000: 5,189,320. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the annual report to shareholders for the year ended December 31, 1999 are incorporated by reference into Part II. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Company has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, on this 4th day of April, 2000. JOHN Q. HAMMONS HOTELS, INC. By: /s/ Kenneth J. Weber ----------------------- Director, Chief Financial Officer of John Q. Hammons Hotels, Inc. (Principal Financial and Accounting Officer) EXHIBIT INDEX No. Title - --- ------ 10.6a Collective Bargaining Agreement between Hotel Employee and Restaurant Employee Union Local 49 and Holiday Inn Sacramento--Capitol Plaza, for 06/01/98 to 5/31/01 13.1 1999 Annual Report to Shareholders EX-10.6A 2 COLLECTIVE BARGAINING AGREEMENT EXHIBIT 10.6(a) Capitol Plaza Holiday Inn H.E.R.E. Local 49 300 J Street 1824 Tribute Road, Suite D Sacramento, CA 95814 Sacramento 446-0100 564-4949 or 1-800-HOTEL-49 Medical & Dental: 921-3388 or 1-800-562-9383 June 1, 1998 through May 31, 2001 Section 1. Recognition Section 2. Union Representative's Activities/Shop Stewards Section 3. Types of Employees Section 4. Reporting Pay Section 5. Work Schedules Section 6. Discrimination and Equal Pay Section 7. Meals and Rest Periods Section 8. Work Day, Week, and Overtime Section 9. Vacations and Leaves of Absence Section 10. Holidays and Well Days Section 11. Funeral & Jury Duty Leave Section 12. Medical and Dental Plans Section 13. Pension Section 14. Contributions and Collections Section 15. Superior Workers and Premium Pay Section 16. Combination Jobs Section 17. Disciplinary Actions Section 18. No Strike and No Lockout Section 19. House Cards and Union Buttons Section 20. Union Security Section 21. Employer's Operation Section 22. Grievance Procedures Section 23. Arbitration Section 24. Dues and Fees Check-off Section 25. Worker's Compensation Section 26. Management Rights Reserved Section 27. Seniority Section 28. Terms, Terminations, and Amendments Section 29. Craft Rules, Regulations, and Working Conditions Section 30. Wage Scales Section 31. Signatures Note: Wherever a masculine pronoun occurs in this document, it shall be understood to include the feminine pronoun. COLLECTIVE BARGAINING AGREEMENT 6-1-98 to 5-31-01 THIS AGREEMENT, hereinafter called the contract, entered into this day of 1999, at Sacramento, California, by and between the Hotel Employees and Restaurant Employees Union Local 49, AFL-CIO, hereinafter known as the Union, and Holiday Inn - Capitol Plaza Sacramento, hereinafter designated as Employer. In the event any portion of this contract is invalidated by the passage of legislation or by the rendition of a decision by a court of last resort, such invalidation shall apply only to those portions thus invalidated; and the remaining portions of this contract shall remain in full force and effect. If this occurs both parties shall meet within fifteen (15) calendar days for the purpose of renegotiating different provisions relative to the subject matter invalidated. Section 1. RECOGNITION: The Union shall be recognized as the sole bargaining agent for the purpose of collective bargaining for all employees coming under the jurisdiction of the Union, except employees excluded under any applicable Federal law. Section 2. UNION REPRESENTATIVE'S ACTIVTIES/SHOP STEWARDS: (a) Properly authorized representatives of the Union shall be permitted to investigate the standing of all employees and to investigate conditions to see that the contract is being enforced, provided that no interview shall be held during the rush hours, or unreasonably interrupt the duties of any employee. Authorized Union representatives shall inform the Employer or department head of their presence at the Hotel before interviewing employees. (b) Shop Stewards (1) The maximum number of Shop Stewards shall be three (3) Shop Stewards. It is understood that no more than one(l) Shop Steward shall be involved in the handling of any one particular grievance. If any problem arises with the implementation of a Shop Steward system at the hotel, the parties agree to meet upon request of either party and work out mutually agreeable solutions to the problem. (2) The Employer agrees to recognize Shop Stewards. Shop Stewards shall assist in the handling and/or investigation of grievances and may participate in all steps of the grievance procedure. It is understood that during work time, if an employee requests the presence of a Shop Steward at a meeting where discipline may occur, the Shop Steward shall be allowed to leave his assigned job to attend such meeting. Shop Stewards may discharge their responsibilities at other times during their working hours only if prior approval is obtained from their immediate supervisor and there is no disruption in work. The Employer reserves the right to schedule grievance meetings during non-working hours of the Shop Steward. It is understood that Shop Stewards may cross departmental lines. Capitol Plaza Holiday Inn 2 6/l/98 - 5/31/01 (3) Shop Stewards shall receive training from the Union concerning their duties and responsibilities. In order to recognize Shop Stewards, the Union shall notify the Employer of the names of the trained and certified Shop Stewards. (4) The Union may appoint or elect Shop Stewards. The election may be held on Employer's premises. It is understood that balloting will be conducted on the employee's own time and shall not cause disruption of the Hotel operations. Section 3. TYPES OF EMPLOYEES: (a) Full-time Employee: Any combination of shifts totaling thirty (30) hours or more in a five (5) day period (work week). (b) Steady Part-time Employee: Any combination of shifts totaling less than thirty (30) hours in a five (5) day period (work week). (c) Tipped Employee: Food and beverage servers, bus persons, bellpersons, bartenders, and valet parking attendants. (d) Non-tipped Employee: All others not mentioned in Sub-Section (c) above. Section 4. REPORTING PAY: (a) When an Employer or his representative orders an employee to report for work or fails to notify an employee not to report for work for any reason and said employee is not allowed to work, the Employer shall pay the employee for one-half (1/2) of the shift called for but not less than four (4) hours minimum. This shall not apply to an employee under the influence of liquor or drugs. Employees scheduled to attend mandatory training/educational sessions shall be compensated at a two (2) hour minimum pay, or actual time spent, whichever is greater. (b) Employees who are to be terminated must be notified at the end of their shift. If this is not done and they report for work the next regular work day and are not placed at work, they shall receive one-half (1/2) of their scheduled shift or four (4) hours minimum pay for so reporting. Section 5. WORK SCHEDULES: (a) The Employer shall post in a conspicuous place in each department, a work schedule specifying names and classifications, days off and starting and finishing time, which must be corrected weekly if need be. The weekly schedule should be posted by 12:00 noon on Thursday, to be effective 4:00 a.m. on Saturday. (b) Except for Housekeeping Department Employees, regularly scheduled employees shall have a fixed starting time, which time shall not be changed by the Employer without giving a thirty-six (36) hour notice to the affected employee, except in case of need or emergency and by mutual consent. It is further understood that: 1. All employee requests for a variance in a posted schedule will be at the sole discretion of management. 2. All employee requests for a variance in scheduling must be submitted before the schedule is posted and must be in writing. Schedule variance requests will not be considered granted unless signed as approved by the Department Head. Capitol Plaza Holiday Inn 3 6/1/98 - 5/31/01 The employee shall be responsible for keeping this written approval in case of a dispute. 3. Seniority shall determine who has preference for a schedule variance request if a conflict between employees arises before the schedule is posted. 4. After posting of the work schedule, schedule variance requests, if granted at all, will be to the first person to request the variance in writing. 5. The scheduling procedures for the Housekeeping Department are attached hereto as Addendum "B". (c) Except as provided for in Section 4 (a), the minimum shift for all classifications will be for four (4) hours, except the Banquet Department which has a three (3) hour minimum shift. (d) Split Shifts: Six (6) to eight (8) hours work within a spread of twelve (12) consecutive hours with only one (1) split shall constitute a split shift. Split shifts will be paid one (1) hour at the current minimum wage in addition to wages earned, in accordance with current I.W.C. regulations. Section 6. DISCRIMINATION AND EQUAL PAY: (a) There shall be no discrimination against any employee in accordance with all applicable State and Federal laws. (b) The Union and the Employer agree the Employer shall be permitted to take all actions necessary to comply with the Americans With Disabilities Act. However, the Employer agrees that any accommodation made for an employee which conflicts with any term or provision of this contract shall first be discussed with the Union prior to its implementation. In any event, the only issue under this provision that may be subject to the grievance procedure is pursuant to the security provisions of this Contract. Section 7. MEALS AND REST PERIODS: (a) All meals furnished under this contract will be above and beyond the wage scales set forth in this contract and at no cost to the employee, except for any applicable State or Federal tax liability. (b) Any employee working four (4) hours or more per day shall receive one (1) hot or one (1) cold meal of comparable quality to that served to the customer, excluding gourmet items. (c) Any employee working a full shift shall be given an opportunity to eat a meal within not less than two (2) or more than five (5) hours from the commencement of the shift. This may be waived by mutual consent, but in no case will an employee be allowed to work more than five (5) hours without a meal break. (d) In the event that employees are not permitted to eat in the dining room, they shall be provided with clean and sanitary facilities therefor, and be responsible for removing their own dishes, silverware, glassware, etc., to a proper station. (e) Where one (1) hot or cold meal is required to be furnished, pursuant to this Section, and the employer fails to furnish such meal, he shall pay the employee one dollar and fifty cents ($1.50) for each meal not furnished. Employees who voluntarily do not eat the meal furnished by the Employer shall have no claim on the Employer for cash in lieu of that meal. Capitol Plaza Holiday Inn 4 6/1/98 - 5/31/01 (f) All employees shall be entitled to a ten (10) minute rest period for every four (4) hours worked or major portion thereof. Section 8. WORK DAY, WEEK, AND OVERTIME: (a) Seven and one-half (7 1/2) hours within eight (8) shall constitute an eight (8) hour shift and a day's work, except for bartenders, security, night auditors and graveyard housekeeping personnel. All of these employees shall be paid for all eight (8) hours of their eight (8) hour shift (includes their thirty (30) minute meal break). (b) Any work performed in excess of an eight (8) hour shift shall be compensated at time and one-half (1 1/2) of the regular rate of pay for each major portion of each quarter (1/4) hour worked. (c) Five (5) days in seven (7) consecutive days shall constitute a work week. Any work performed on the sixth (6th) or seventh (7) day of any seven (7) consecutive days shall be at time and one-half (1 1/2) of the regular rate of pay. (d) A ten (10) hour, four (4) day, work week may be implemented by mutual agreement of the Union and the Employer, in a given classification. (e) Except for Banquet Department employees, no employee shall be allowed to work more than one (1) shift in any one (1) calendar day. This shall not prohibit the performance of overtime work consecutive with the shift completed. (f) Except for Banquet Department employees, eight (8) hours must elapse between any two (2) regular scheduled shifts. Should a period of eight (8) hours not elapse between the end of any one (1) regular scheduled shift and the beginning of the next regular scheduled shift, then overtime wages of one and one-half (1 1/2) of the regular rate of pay shall prevail. This shall not apply in case of emergency and with the mutual consent of both parties. This shall not apply to split shifts as defined under Section 5. Section 9. VACATIONS AND LEAVES OF ABSENCE: (a) Vacations with pay are hereby established for all employees. The period of service for the purpose of earning a vacation shall begin with the date of employment with this Employer and be calculated as follows: After twelve (12) consecutive months he shall be entitled to one (1) week's vacation with pay. After twenty-four (24) consecutive months he shall be entitled to two (2) weeks vacation with pay. Effective January 1, 1999, after eight (8) consecutive years and thereafter, he shall be entitled to three (3) weeks vacation with pay. Effective January 1, 1999, after fifteen (15) consecutive years and thereafter, he shall be entitled to four (4) weeks vacation with pay. Vacations shall not be cumulative: i.e., they may not be accumulated from one twelve (12) month period (commencing with the anniversary date) to the next. Pay for unused vacation time shall be paid out on the employee's anniversary. (b) Vacation pay shall be computed by the formula which follows. The earnings upon which the computation is made shall be the total sum earned during this period with the exception Capitol Plaza Holiday Inn 5 6/1/98 - 5/31/01 of banquet service charges and employee's declared tips, meals, premium holiday pay and bonuses. Vacation Pay Computation 1st year - 2% of wages earned. 2nd through 7th year - 4% of wages earned. 8th through 14th year - 6% of wages earned. 15th completed year and thereafter - 8% of wages earned. (c) For the purpose of pro-rating vacations for all employees, who quit or are terminated and who have served more than six (6) months shall on termination of employment be compensated in lieu of vacation as follows: Vacation Pay Upon Termination 6 months and up to 12 months - 2% of wages earned. 13 months through 7th year - 4% of wages earned. 8th year through 14th year - 6% of wages earned. 15th completed year and thereafter - 8% of wages earned. (d) Temporary layoffs or leaves of absence for non-medical reasons, not exceeding the following schedule, shall not interrupt continuity of employment for the purpose of vacation eligibility: 1. During the first year of employment - 30 days. 2. During the second and subsequent years of employment - 45 days. 3. Those employees with three or more years of seniority shall be entitled to a leave of absence of up to six (6) months. 4. These time periods shall not be cumulative. 5. The Employer shall grant eligible employees family care leaves as required by the Federal Family and Medical Leave Act and California Family Care Act. The Union and the Employer agree that this contract shall be interpreted to be consistent with these State and Federal Laws. (e) During each November, sign up sheets will be posted for vacation selection. During that month, employees will have the option of choosing a vacation period in the following calendar year. If two (2) or more employees request the same time period for vacation, and all cannot be granted that period, hotel seniority shall determine who will get that time period. If at the end of November, an employee fails to schedule a vacation time period, the Employer shall have the right to schedule that employee for vacation time off. Unless there is a serious verifiable emergency, any employee who has been given or selected a given vacation period may not request a change in said vacation period unless at least fourteen (14) calendar days advance written notice is given. In all cases granting of variances is at the sole discretion of the Employer. Black-out Capitol Plaza Holiday Inn 6 6/1/98 - 5/31/01 periods, where no vacation will be granted, are at the sole discretion of the Employer. However, if business allows, the Employer has the option of releasing any of that time for vacations. (f) Employees shall be entitled to one (1) additional week without pay to follow consecutively after their paid vacation. The employee must request this additional time off at the same time as they request their vacation pay; 45 calendar days in advance of the start of their vacation. (g) The employee will be paid their vacation pay within thirty (30) calendar days prior to the start of their vacation by means of the regular payroll period. However, employees must fill out a vacation pay request forty-five (45) calendar days prior to the start of their vacation for this to be guaranteed. If after so doing this, the Employer fails to have the vacation pay included in the regular pay period check, a separate check will be issued for that vacation pay prior to the start of the vacation. (h) The Employer will pay Medical, Dental and Pension payments for said vacation time on the same hours as if the employee actually worked. This will not apply to terminated employees. Section 10. HOLIDAYS AND WELL DAYS: (a) The following days shall be observed as holidays: New Year's Day (January 1) President's Day (3rd Monday in February) Memorial Day (last Monday in May) Independence Day (July 4th) Labor Day (1st Monday in September) Thanksgiving Day (4th Thursday in November) Christmas Day (December 25th) Any work performed on such days shall be paid for at time and one-half (1 1/2) the regular rate of pay. If an employee does not work on a holiday, said employee is not entitled to holiday pay. (b) Any non-tipped employee working on a holiday which is also their sixth (6th) or seventh (7th) consecutive day of work will be compensated at two (2) times the regular rate of pay. (c) After one (1) year of continuous employment (including approved medical leave of absence and vacation time) any employee who has also qualified for medical, dental, and pension benefits will be entitled to paid well days in accordance with the following schedule: Effective: 1-1-99 ------ Employment # of Days ---------- --------- 1 Year 1 2 Years 2 3 Years 5 4 Years 6 5 Years or more 7 Capitol Plaza Holiday Inn 7 6/1/98 - 5/31/01 (d) Well days may be used to cover a day off for illness or injury, and the Employer cannot demand a doctor's report unless that day is a holiday, or immediately prior to or after a holiday, the vacation period, or regularly scheduled days off. Other than this type of medical emergency, one week's notice must be given to the Employer to schedule a well day off. The Employer has the option to waive this advance notice. Well days may be taken off consecutively where applicable. Unused well days may accumulate to a maximum of eighteen (18) days. If currently over eighteen (18) days, the Hotel will pay off excess days. Section 11. FUNERAL & JURY DUTY LEAVE: (a) In the event of a death in the immediate family of an employee who has one (1) or more years of employment with this Employer, that employee shall be granted a leave of absence with pay not to exceed three (3) days. This provision does not apply if the funeral occurs during the employee's vacation, leave of absence, days off, lay off or sick leave. A day's pay shall be based upon an employee's normal work schedule. (b) The immediate family shall mean only a (step) father, (step) mother, (step) brother, (step) sister, spouse, (step) child, (step) mother-in-law, (step) father-in-law, or (step) grandparent. (c) Funeral leave applies only when the employee must make arrangements for the funeral and/or to attend the funeral. It is not applicable for other purposes, such as settling the estate, etc. (d) The Employer may demand verification of the death and the relationship. The employee must notify his immediate shift supervisor as soon as possible of the death and his necessary absence from work. (e) Funeral leave hours shall count toward Medical, Dental and Pension benefits calculations. (f) Employees serving on jury duty shall retain their seniority, and the Employer will continue to make contributions for them to continue their Medical, Dental and Pension benefits on the same basis as their scheduled hours before that jury duty. In no event shall the Employer continue Medical, Dental and Pension benefits for more than thirty (30) calendar days per calendar year. Section 12. MEDICAL AND DENTAL PLANS: (a) The Sacramento Independent Hotel, Restaurant and Tavern Employees Welfare Plan is hereby established. The details of the Trust Fund and the Declaration of Trust dated the 1st day of April 1954 and the 1st day of August 1954, as executed by the parties hereto is hereby made a part of this contract. The Fund shall be administered by the Employers and the Union through a Board of Trustees. The Union recognizes the Sacramento HERE Employers' Association as the representative body to appoint and/or remove Management Trustees on said Board, provided said Association is legally constituted and approved by Employers representing a majority of employees who are participants in the Fund. (b) Eligibility Requirements: In all cases, for an employee to be eligible for coverage he must work a minimum number of hours per calendar month commencing with the calendar month immediately following the calendar month of the date of hire as follows: Capitol Plaza Holiday Inn 8 6/1/98 - 5/31/01 All Employees........60 hours or more per calendar month. For all purposes under this contract, the above are known as the "minimum required number of hours per calendar month." They must be worked for a single contributing Employer under this contract. (c) Contributions: For each eligible employee the Employer shall contribute during the term of this contract the following sums per calendar month; January 1999 contributions are based upon December 1998 hours: 1. MEDICAL - Low Plan (Low Indemnity): 1-1-99 $84.00 This rate is for all new hires, for their 1-1-00 $88.00 first twelve (12) calendar months of 1-1-01 $92.00 employment including anyone hired during the month of the 1999 ratification vote. 2. MEDICAL - High Plan (fully paid Kaiser or High Indemnity): 1-1-99 $119.00 This rate is for all employees who have 1-1-00 $129.00 completed twelve (12) calendar months 1-1-01 $139.00 of employment, or have been hired prior to the month of the 1999 ratification vote. 3. During the term of this contract, PacifiCare HMO, or another equal value HMO will be offered as an alternative plan. Any employee may choose either Plan by completing the necessary paperwork within 30 days of hire or during the annual open enrollment. Those employees must then co-pay the difference between the PacifiCare premium, or its alternative, and the Employer's contribution each month through payroll deduction. 4. DENTAL: 4-1-99 1-1-00 1-1-01 ------ ------ ------ All Employees, 60 hours or more.....$13.00......$14.00......$15.00 It is the desire and intent of the contracting parties to seek to preserve a sound financial reserve in the Trust Fund to adequately meet the needs of the participants of the Fund. Should depletions of the reserves occur in excess of what can be recovered, then the Trustees will modify benefits temporarily until such time as financially corrective measures can be taken. (d) Contributions to the Fund for work performed shall be paid not later than the tenth (10th) day of the month following that in which such work is performed. Contributions to be made to the Administrator of the Fund on forms furnished to the Employer by the Fund showing name of the employee, social security account number of new employees, number of hours worked, the amount of contributions due, and such other information as required by the Trustees. (e) It is hereby agreed that the Employer shall permit a confidential audit of payroll records by an authorized representative of the Medical Trust Fund to verify hours worked only. (f) The Trustees of the Sacramento Independent Hotel, Restaurant and Tavern Employees Welfare Plan shall not be obligated to, and are not authorized to accept any Capitol Plaza Holiday Inn 9 6/1/98 - 5/31/01 contributions from an Employer under this Section of the contract unless the said Employer is currently a party to or bound by a current contract with the Hotel Employees and Restaurant Employees Union Local 49. (g) The Employer agrees to pay up to two (2) months contributions per calendar year for Medical and Dental benefits for any qualified employee who is off work because of medical reasons. A qualified employee shall be deemed an employee who has been qualified under this section for twelve (12) months continuous service for this Employer. (h) The schedule of benefits to be provided for each eligible employee and each covered dependent shall be determined by a majority of the Board of Trustees of said Fund. (i) The Employer agrees to participate in an employee co-payment program for dependent coverage. The co-payment schedule is set by the Trust Fund, and the benefits provided shall be determined by the Trust Fund. The co-payments must be transmitted to the Trust Fund concurrent with the payments for the employee's coverage in order to maintain coverage. All of the conditions and penalties apply to co-payment coverage that apply to employee coverage as stated in this Section and the Contributions and Collections Section, as well as the decision of the Trustees of that Trust Fund. (j) There will be an open enrollment period during the month of October. Employees shall pay by payroll deduction, and the Employer shall remit to the Fund each month its monthly contributions, the difference between the amount of monthly contributions paid by the Employer, as shown above, and the actual costs of providing the benefits of the Plans, as determined by the Trustees. For this purpose, the Employer shall provide for automatic and continuing payroll deduction. All employees participating in the Plan shall by this Contract be deemed to have granted the Employer authorization to withhold from their wages the amounts necessary to maintain coverage. These deductions will continue for one (1) full year for those originally eligible. The deductions will be made only in months that the employee has 60 hours of work or pay and for which the Employer makes a contribution to the Welfare Fund. In case of marriage, births, adoptions, etc., new dependents may be added within 30 days. New employees will begin to have the dependent contributions deducted, if they chose such coverage, in the last month of Employer contributions which will make the family eligible for benefits in the succeeding month. Those employees who do not sign up their dependents when originally eligible will have to provide evidence of insurability, at their own expense, if they wish to enroll the dependent(s) at a subsequent annual open enrollment period. The Employer will supply to the Trust Fund Administrative office a copy of each payroll deduction form signed by an employee. Section 13. PENSION: (a) Sacramento Independent Hotel, Restaurant and Tavern Employees Pension Plan is hereby established. The parties to this Contract shall enter into a Trust Agreement complying with the provisions of Section 302(c), of the Labor Management Relations Act, 1947, as amended, under which the Pension Plan shall be administered and under which a Board of Trustees upon which Union and Employer have equal representation shall be created. The Union recognizes the Capitol Plaza Holiday Inn 10 6/1/98 - 5/31/01 Sacramento HERE Employer's Association as the representative body to appoint and/or remove Management Trustees on said Board, provided said Association is legally constituted and approved by Employer's representing a majority of employees who are participants in the "Fund." (b) Eligibility Requirements: In all cases, for an employee to be eligible for coverage he must work a minimum number of hours per calendar month commencing with the calendar month immediately following the calendar month of the date of hire as follows: All Employees.......60 hours or more per calendar month. For all purposes under this contract, the above is known as the "minimum required number of hours per calendar month." They must be worked for a single contributing Employer under this contract. (c) Contributions: For each eligible employee the Employer shall contribute during the term of this contract the following sums per calendar month: PENSION: 1-1-99 1-1-00 1-1-01 ------ ------ ------ All Employees, 60 hours or more............$23.00......$28.00......$33.00 (d) Contributions to the Fund for work performed shall be paid not later than the tenth (10th) day of the month following that in which such work is performed. Contributions to be made to the Administrator of the Fund on forms furnished to the Employer by the Fund showing name of the employee, social security account number of new employees, date of birth, number of hours worked, the amount of contributions due and such other information as required by the Trustees. (e) It is hereby agreed that the Employer shall permit a confidential audit of payroll records by an authorized representative of the Pension Plan Trust Fund to verify hours worked only. (f) The Trustees of the Sacramento Independent Hotel, Restaurant and Tavern Employees Pension Plan shall not be obligated to, and are not authorized to accept any contributions from an Employer under this Section of the contract unless the said Employer is currently a party to or bound by a current contract with the Union. (g) The schedule of benefits to be provided for each eligible employee shall be determined by a majority of the Board of Trustees of said Fund. Section 14. CONTRIBUTIONS AND COLLECTIONS: (a) Failure to pay contributions required under Sections 12 and 13 of this contract when due may result in impairment of or loss of benefits to the employees and result in additional costs in the administration of the Trust Funds. It is impractical and extremely difficult to fix the actual damage resulting from failure to pay the contributions in the manner and at the times provided in Sections 12 and 13. The contributions are due on the tenth (10th) of the month. Consequently, if the Employer fails to make such contributions by the twentieth (20th) of the month in which such contributions are due, the Employer shall pay an additional sum equal to ten Capitol Plaza Holiday Inn 11 6/1/98 - 5/31/01 percent (10%) of the contributions due and payable in such month, or fifty dollars ($50.00), whichever is greater, as liquidated damage for each such late payment. In addition the Employer shall pay interest in the amount of one and one-half percent (1 1/2%) per month (eighteen percent (18%) annual interest) on the unpaid balance. (b) In the event the Employer willfully fails to report and pay the contributions as required by Sections 12 and 13, or in the event the Employer so negligently keeps and maintains his books and records that the amount of the contributions reported and paid are ten percent (10%) less than the total contributions found to be due under Sections 12 and 13, he shall pay the cost of the audit, but in no event more than one thousand dollars ($1,000). (c) In the event the Trustees are required to file suit to collect contributions due under Sections 12 and 13, the Employer agrees to pay such sums as the court shall fix as attorneys' fees and court costs. (d) The parties hereto hereby authorize the Trustees of the Sacramento Independent Hotel, Restaurant and Tavern Employees Welfare Plan Trust, and the Trustees of the Sacramento Independent Hotel, Restaurant and Tavern Employees Pension Trust, to waive or compromise the liquidated damages, cost of audit, and/or attorneys' fees provided above when in their judgment such waived or compromise is deemed just and proper. (e) The parties hereto agree to abide by any and all action taken by the Trustees of the Health and Welfare Plan and the Pension Plan or a successor Trust designated by the Union between January 1, 1999, and May 31, 2001. Section 15. SUPERIOR WORKERS AND PREMIUM PAY: (a) The scale of wages in this contract are minimum scales and do not prohibit a superior worker from receiving a higher wage scale. (b) Employees receiving premium pay above the contract wage scale shall be red circled and shall be given the same increase that the contract rate receives. (c) No employee shall as a result of the signing of this contract suffer a reduction in his wages or fringe benefits. (d) If the State or Federal Minimum Wage is established at an amount in excess of the wage scales in this contract, then those minimum wages established shall take effect immediately in this contract in lieu of wages herein established. Section 16. COMBINATION JOBS: When an employee occupies a position combining two (2) or more classifications in any day, said employee shall be paid for the time worked in each classification at the contract rate of pay for that classification. This shall not apply to relief for meal periods or rest periods nor to employees for whom combination scales are fixed in this contract. Section 17. DISCIPLINARY ACTIONS: (a) The Employer may only discipline, suspend or terminate for reasons of just cause. The Employer shall have the right to establish reasonable rules, policies and regulations to maintain a safe and efficient operation. Capitol Plaza Holiday Inn 12 6/1/98 - 5/31/01 (b) Written disciplinary notices (written warnings, suspensions and terminations) issued to employees must specify the events or actions for which the notice is issued. Written disciplinary notices shall be issued to employees within five (5) calendar days excluding Saturdays, Sundays, vacations, leaves of absence, and holidays, after the Employer first became aware of the event or action for which the disciplinary notice has been issued. Employees shall be provided with a copy of the notice and a copy shall be mailed to the Union. (c) The Union shall have the right to challenge the propriety of any discipline and/or termination pursuant to the requirements of the Grievance Procedures Section of this Contract. (d) It is understood that except in cases which are considered serious enough for immediate termination, discipline shall be progressive and corrective in nature. Warning notices, including suspensions, shall be considered null and void after a period of twelve (12) months. (e) Probationary Period. An employee may be terminated or disciplined for any reason during the first ninety (90) calendar days of employment (the probationary period) and such termination or discipline shall not be subject to the grievance or arbitration procedures of this contract. (f) An employee may not be terminated while: 1. On vacation. 2. On written leave of absence. 3. On medical leave not exceeding four (4) months if employee furnishes Employer with monthly progress reports of doctor and full release from doctor upon returning to work. Section 18. NO STRIKE AND NO LOCKOUT: Both the Union and the Employer recognize the service nature of the hotel business and the duty of the Employer to render continued and hospitable service to the public by supplying food, lodging, and other hotel accommodations. Therefore, neither the Union or any of the employees will call, engage in, participate in, or sanction any strike, sympathy strike, slow-down, stoppage of work, picketing, or boycott during the life of this Contract. The Employer shall not engage in a lock out during the life of this Contract. Section 19. HOUSE CARDS AND UNION BUTTONS: (a) This establishment may display the International House Card, and it shall at all times remain the property of the Union, and may be removed from this establishment for failing to comply with this contract. (b) Employees may wear one (1) standard Local 49 Union Button while on duty. Section 20. UNION SECURITY: (a) The Employer shall notify the Union of all job openings within the bargaining unit covered by this Contract. The Union may refer qualified applicants for those openings. The Employer shall be the judge of the qualifications of his employees and applicants. (b) All present employees who are not members of the Union on the effective date of this Contract shall, as a condition of employment, on or after the thirtieth (30th) calendar day following the effective date of this Contract become and remain members of the Union. Capitol Plaza Holiday Inn 13 6/1/98 - 5/31/01 All new employees hired on or after the effective date of this Contract shall, as a condition of employment, on or after the thirtieth (30th) calendar day following the beginning of such employment, become and remain members in good standing of the Union. As a condition of continued employment, all employees must be members of the Union. For purposes of this Section, the terms "members of the Union" and "members in good standing" shall be defined as one who timely tenders any Initiation fee and/or monthly dues as set forth in the Bylaws and Constitution of the Union and in accordance with applicable law. (c) Upon written notice from the Union of failure on the part of any individual employee to complete or maintain membership in the Union as above required, the Employer shall within seven (7) calendar days of such notice, terminate such employee. The Union agrees to and will hold the Employer harmless from and will indemnify the Employer from any and all claims, including attorneys' fees and costs, that may be asserted as a result of any such Union request for termination of an employee. (d) No employee shall be allowed to enter into any individual contract or agreement with his Employer concerning conditions of employment or wages which are less than the conditions of employment or wages contained herein for hours worked. (e) If a salaried supervisorial employee works at the trade he must become or maintain his membership in the Union in good standing; providing, however, this Section shall not be applicable to work at the trade in emergencies, fill- in work during vacation periods, and under other circumstances mutually agreed to by the Employer and the Union. (f) When an employee is hired, the Employer will notify the employee of this contract. Within seven (7) calendar days following the date of hire, the Employer shall notify the Union in writing of the name, date of hire, classification, rate of pay, address and social security number. Section 21. EMPLOYER'S OPERATION: All provisions of this contract shall be equally effective under any sub- contract or concession covering work performed in or outside of the establishment of the Employer within the classification of work as set forth in the terms of this contract. (The status of the gift shop is governed by Addendum A of this contract.) In the event business conditions necessitate the subcontracting of any one or all services performed in any bargaining unit classification, the Employer agrees to give the Union sixty (60) days notice of its intention to subcontract and will agree to meet and discuss the issue with the Union should there be any adverse impact upon any bargaining unit member. The Employer further agrees to inform the subcontractor of the existence of the contract, and in good faith make their best effort to ensure the subcontractor retains the current employees. Section 22. GRIEVANCE PROCEDURES: For purposes of this contract, a grievance shall be defined as a dispute, or difference of opinion, between the Union and the Employer involving the meaning, interpretation, or application of this contract, or the alleged violation of any provision of this contract. Both parties having mutually agreed to the benefits of speedy resolutions of grievances, especially disciplinary action for alleged violations of house rules, procedures or terms and Capitol Plaza Holiday Inn 14 6/1/98 - 5/31/01 conditions of this contract. All such disputes shall be processed in the following time and manner. Time limits at any step in the procedure may be waived by mutual agreement of the parties. Step 1. The employee may discuss the matter with his supervisor on an informal basis to settle the matter promptly. The employee may have a Union Shop Steward or Union representative assist him in Step 1. if he so desires. Step 2. (a) If the grievance is not resolved at Step 1., the Union Representative shall meet with the Employer, or his authorized representative, for the purpose of attempting to resolve the dispute. (b) The employee or the Union Representative must submit all disciplinary grievances in writing to the Employer within ten (10) calendar days after the disputed discipline occurred, or it will be deemed waived by the grieving party, as well as both the Union and the Employer. (c) All non-disciplinary grievances must be submitted in writing to the other party within twenty (20) calendar days of first knowledge of said grievance or it will be deemed waived by the parties. (d) If a settlement of the grievance is not reached during Step 2., then the Union may file for a Board of Adjustment (Step 3.). In any event, the Union must file for a Board of Adjustment within ten (10) calendar days of the date that the grievance was filed in writing with the Union. Failure to request an Adjustment Board in the prescribed time frame shall disallow any further action on the grievance unless the time period is waived by the Union and the Employer. Step 3. The Adjustment Board shall meet within seven (7) calendar days of a request for a hearing. The Adjustment Board shall consist of two (2) representatives from each contracting party. The Adjustment Board shall be empowered to hear and resolve, by simple majority, all grievances properly brought before them. Any decisions of the Adjustment Board shall be final and binding. If the Adjustment Board cannot agree on any matter before it, the grieving party may request arbitration. Said request must be done within seven (7) calendar days of the deadlocked decision of that Adjustment Board, or that grievance shall be deemed waived by both parties. Section 23. ARBITRATION: (a) If arbitration is resorted to, the decision of the arbitrator shall be final and binding upon both of the parties. The time limits contained herein may be waived by mutual agreement of the parties. (b) Within ten (10) calendar days of the request to arbitrate, the parties shall choose an arbitrator from a list of seven (7) arbitrators provided by the Federal Mediation & Conciliation Service. (c) Expedited arbitrations shall commence within twenty-eight (28) calendar days of the request for arbitration in all disciplinary grievances. (d) All non-disciplinary grievances shall proceed at the earliest possible date, and the arbitrator chosen must be instructed by the parties to render his written decision within thirty (30) Capitol Plaza Holiday Inn 15 6/1/98 - 5/31/01 calendar days of the arbitration, unless a bench decision has been mutually requested by the parties. (e) Arbitration hearings shall be conducted in accordance with the following procedures: 1. Continuances may be granted by the Arbitrator, but any cost shall be paid by the requesting party. 2. There shall be no formal rules of evidence. 3. Hearings shall normally be completed within one (1) day. 4. The Arbitrator shall have sole authority to rule on all motions and to decide the case. 5. Bench decisions shall be the rule in all disciplinary cases, unless otherwise agreed to beforehand by the parties. (f) Each party shall bear their own cost of the arbitration excluding the Arbitrator's fee and his related costs which shall be equally divided between the parties. (g) The Arbitrator shall not have the power to add to, or to modify any of the terms, conditions, sections or subsections of this contract. The arbitrator's decision shall not go beyond what is necessary for the interpretation and application of this contract in the case of the specific grievance at issue. (h) No grievances that arose between June 1, 1998, and January 22, 1999, are subject to the provisions of Section 23. Section 24. DUES AND FEES CHECK-OFF: (a) The Employer will deduct from their wages and turn over to the duly designated officer of the Union the membership dues, initiation fees, and reinstatement fees of such members of the Union as individually and voluntarily certify in writing on and after the date of this contract that they authorized such deductions. Such written authorizations shall be irrevocable for a period of one (1) year or until the termination or renewal of this contract, whichever occurs sooner, and such written authorizations shall be automatically renewed and shall be irrevocable for successive periods of one (1) year or until the termination or renewal of this contract, whichever occurs sooner, and such written authorizations shall be automatically renewed and shall be irrevocable for successive periods of one (1) year each, or for the period of such succeeding contracts between the Employer and the Union, whichever shall be shorter, unless written notice of revocation is given to the Employer and a copy sent to the Union not more than fifteen (15) calendar days before the expiration of each period of one (1) year, or each succeeding contract between the Employer and the Union, whichever occurs sooner. All dues and fees deducted from an employee's paycheck are then the property of the Union and are being held in trust for the Union until delivered to the Union. (b) The form of such written authorization shall be on a form supplied by the Union and approved by the Employer, which form shall be attached hereto and made a part of this contract and marked Addendum "C." (c) Deductions for Union membership dues and fees pursuant to this Section shall be made from the second (2nd) paycheck of the employee after receipt of the authorization and monthly thereafter on the first (1st) payday of each month for such time as the authorization remains in effect. Capitol Plaza Holiday Inn 16 6/1/98 - 5/31/01 (d) The provisions of this Section are intended solely as an accommodation to the Union. It is expressly agreed and clearly understood by the parties that no agency, bailment, or any other relationship is created, intended, or shall be implied between the Employer and the Union, or between the Employer and any employee or group of employees. Further, the Union specifically agrees to hold the Employer harmless from any and all losses, damages, or injury of every nature whatever, including but not limited to the expenditure of all attorneys' fees and all court cost incurred by the Employer by reason of the provisions of this Section. Section 25. WORKER'S COMPENSATION: (a) The Employer has secured worker's compensation insurance coverage and will make every reasonable effort to see that injured employees receive prompt, adequate medical attention. Any employee sustaining a work related injury must immediately report said injury to his supervisor and if necessary request medical attention from that supervisor. When an employee has an on the job injury that requires off site medical attention he shall be required to take a drug test. (b) Prior to hiring or within thirty (30) calendar days of hiring an employee or prior to returning to work from an injury, the Employer may require that the employee take a physical examination at no cost to the employee. The intention here is to avoid having employees on jobs which might jeopardize their health or the safety and health of others. Should the medical examination disclose such conditions, the Employer will make every effort to assign the employee to work within his capability. When such other work is not available, the employee may be removed from the payroll and the case taken up with a representative of the Union. (c) All employees will observe all safety rules set up by the Employer. (d) The Employer agrees to add two (2) bargaining unit employees to the Health & Safety Committee. Section 26. MANAGEMENT RIGHTS RESERVED: The Employer shall have the right to determine the extent of its operations and to determine when any operation shall function, or shall be halted, and when services shall be increased and decreased. The authority to hire employees, to direct, retire, promote, transfer, train, layoff, or dismiss any employee for just cause, to maintain discipline, to make reasonable rules, to determine work schedules, and the number of hours an employee may work per day or per week, shall be vested in the Employer, subject to the provisions of this contract. Section 27. SENIORITY: The Employer and the Union agree that the purpose of seniority is to accord consideration to senior employees in recognition of their length of service to their Employer. Seniority is further intended to provide maximum work opportunity to senior employees. (a) Definition: 1. Hotel seniority is an employee's length of continuous service in years, months and days from his most recent date of hire into the bargaining unit. 2. Classification seniority is an employee's length of continuous service in years, months and days from his most recent date of hire, promotion or transfer into his present classification. If Capitol Plaza Holiday Inn 17 6/1/98 - 5/31/01 two or more employees are employed within the same classification on the same day, their seniority shall be determined by whoever is born on the earliest day of the year. (b) Layoff and Recall: When it is necessary to lay off employees, those with the least amount of seniority in the job classification shall be laid off first. When the workforce is increased within the classification, employees on layoff shall be recalled in order of their job classification seniority. All employees on layoff shall be recalled before the hiring of any new employees. (c) Scheduling: 1. Preference for sbifts and days off shall be based on classification seniority. 2. Preference for vacation schedules shall be based on hotel seniority. 3. Employees with the greatest classification seniority shall have the preference of work schedules including days off. A work schedule is defined as a series of days of work, starting/quitting times and days off. (d) Probationary Period: A newly hired employee shall be considered a probationary period employee until he has completed ninety (90) calendar days of employment. Once the probation period has been completed his seniority shall date back to his date of hire. A probationary employee may be laid off or terminated without recourse to the grievance procedure. (e) Promotions and Transfers: 1. In filling job vacancies which may exist within the bargaining unit, the Hotel subscribes to the philosophy of promotion from within. Among employees who are quafified for said job vacancy, in the judgment of the Employer, house seniority shall be the final determining factor in making such selection. In the event of a dispute as to the qualifications of an employee for a promotion, the Union may file a grievance that the Employer has made its determination arbitrarily or capriciously. Nothing herein shall preclude the Employer from hiring an applicant from outside the Hotel or bargaining unit once all internal candidates have been considered. 2. In the event that an employee who, within sixty (60) calendar days of his promotion or transfer, desires to return to his former position or is deemed not qualified to hold the new position, he shall be returned to his former classification without loss of seniority. This provision shall apply to promotions or transfers to positions both inside the bargaining unit and outside the bargaining unit. It is further understood that while an employee is training for an upgraded position, he shall retain all seniority rights in his base classification. 3. Employees who have been promoted into a new classification and as a result of that promotion are not able to achieve the same amount of hours as they were previously working pursuant to their seniority, shall retain the right to work in their previous classification to supplement their hours under the following terms and conditions: (a) The new classification shall be the primary job and therefore shifts must be satisfied there first, prior to working in the previous classification; (b) No overtime will be incurred unless agreed to by the Employer; Capitol Plaza Holiday Inn 18 6/1/98 - 5/31/01 (c) At the time of promotion, on a form to be provided by the Employer, the employee shall choose whether or not he wants additional hours in his previous position in the event he loses hours in his new position due to his promotion. (d) Such protections shall be valid for six (6) months beginning the first date of employment in the new position. In completing and filling out his weekly schedules with work from the previous classification, the promoted employee shall exercise his seniority in that classification in a manner which minimizes the disruption of the schedules in that classification, i.e., bumping the least senior person in the classification which will allow him to make up hours equivalent to his previous schedule. (f) Termination of Seniority: An employee's seniority shall be terminated by: 1. Termination for cause 2. Voluntary quit 3. Failure to return to work at the end of a leave of absence 4. Absence from work for three (3) consecutive days without notifying and providing a satisfactory excuse to the Employer. 5. Failure to report for work after layoff within three (3) calendar days after having been recalled by a notice sent to the employee's last known address by certified mail. 6. A layoff of three continuous months except where the property has been temporarily closed, in whole or in part, for purposes of remodeling or reconstruction. In such a case, the "closed time" shall not be counted toward the three (3) month period of layoff. (g) Seniority Lists: Upon request the Employer shall furnish the Union with a current seniority list every six months. The Employer shall also post an updated seniority list within 10 calendar days of the signing of this contract. Employees shall have ten (10) calendar days from the date of posting to notify the Employer or the Union of any errors in the list. (h) It shall be the responsibility of the employee to keep the Employer and the Union informed of his current address and telephone number at all times. Section 28. TERMS, TERMINATIONS, AND AMENDMENTS: This contract shall be in effect from June 1, 1998, to and including May 31, 2001, and shall remain in full force and effect from year to year thereafter unless either party shall serve written notice upon the other of a desire to amend said contract no later than February 1, 2001, or any subsequent February 1st thereafter. Section 29. CRAFT RULES, REGULATIONS, AND WORKING CONDITIONS: (a) LINEN, LAUNDRY AND UNIFORM: The Employer shall furnish linen and uniforms and launder same without expense to the employee. The Employer reserves the right to select the style or type of special uniform required in his establishment. Any special uniform that is considered wash and wear will be laundered by the employee at no expense to the Employer. Capitol Plaza Holiday Inn 19 6/1/98 - 5/31/01 The ordinary black or white food servers garment which may be worn in other establishments shall not be considered as a special uniform. A cook's uniform shall consist of pants, cap, apron, and jacket, shirt, or dress. When the Employer does not furnish and launder cooks uniforms, he shall pay one dollar ($1) per day in lieu thereof. This shall not apply when an employee refuses to wear the uniform furnished by the Employer, provided such uniforms are wearable and are those customarily worn in the Employer's establishment. Any Employer electing to pay wages in excess of those called for in Section 30 shall not be relieved of this provision. Any Employer electing to reimburse the employee in lieu of uniforms and laundry shall designate such reimbursement on the payroll check stub. (b) BREAKAGE, CASH SHORTAGE, CONTRIBUTIONS AND DEDUCTIONS: No employee shall be required to contribute to a captain, head food server, bartender, or anyone in charge. Unavoidable or accidental breakage or spillage of merchandise or equipment shall not be charged against an employee. No Employer shall make any deductions from the wage or require any refund from an employee for any cash shortage, breakage, or loss of equipment unless it can be proved that the shortage, breakage, or loss is caused by a dishonest or willful act, or by the gross negligence of the employee. No employee shall be held responsible for walkouts or when guests refuse to pay checks. No employee shall be held to pay the house any part of an undercharge. Cash Shortages: No employee shall be held liable for any cash shortages if more than one (1) employee has access to the employee's cash drawer. In the event of an excessive cash shortage, the employee must notify the Employer or his authorized representative for verification, or be held liable for such shortage. (c) CLEANING: 1. No food or beverage server shall be required to wash or wipe glasses, silverware, creamers, tea or coffee pots, or other utensils as part of their regular duties. This Section will not be applied to bartenders. 2. Food and beverage servers shall not be required or permitted to do any work designated as "porter" work, including sweeping, scrubbing floors or walls, defrosting or cleaning the inside of ice cream cabinets or refrigerators and similar work; except the cleaning of back bars and counter may be required as part of food server's work. 3. It is the responsibility of all employees to clean up spills whether or not they caused the spill. This provision shall not result in amending existing job descriptions. (d) PAYMENT OF GRATUITIES: 1. Any house accepting charge accounts or credit cards on which a gratuity or service charge is specified for any employee shall pay the same to said employee upon the completion of the shift. An Employer may require a refund of any gratuities or service charges made on a credit Capitol Plaza Holiday Inn 20 6/1/98 - 5/31/01 card which the employee has received and for which payment is later disallowed or refused. This does not apply to house charge accounts. 2. All banquet and catering gratuities and service charges will be distributed in the following manner: a. Eighty percent (80%) of the customary 15% gratuity and/or service charge shall be distributed to the employees working the affair; and b. Twenty percent (20%) may be distributed to the banquet manager, catering manager and others. c. Where more than the customary 15% gratuity and/or service charge is charged for the affair, the distribution of the excess portion shall be at the discretion of the Employer. The Employer shall be responsible for and guarantee the distribution of said gratuities or service charges and all banquet and catering gratuities received in accordance with this rule. Said service charge or gratuity will be in addition to the wages set forth in this contract. The distribution formula may be deviated from where the success of the affair is substantially due to the particular skills and/or labor of employees other than regular banquet personnel, in which case the gratuity or service charge will be distributed in a fair and equitable manner to all employees concerned. 3. Representatives of the Union shall have the right to inspect all records in connection with any gratuities or service charges and disposition of same on behalf of employees working a particular function on request. (e) BANQUET RULES: 1. All banquets served on Sunday after 11:00 a.m. shall receive the dinner scale. If banquet servers, after completing their parties, are transferred to ala carte service, they shall, after three (3) hours be paid the appropriate ala carte rate per hour. No banquet server will work ala carte without the employee's consent. 2. Dinner dances where food servers collect all checks, shall be paid the ala carte scale. Non-collecting dinner dances shall be paid at the banquet rate per hour with a minimum of three (3) hours. 3. Steady help are not allowed to work on banquets unless extra help is not available; provided this shall not apply where the use of extra banquet servers will result in closing stations. Steady help working on banquets of twenty-five (25) or more shall receive banquet scale regardless of number of guests served. Steady help may be employed on parties of twenty-four (24) or less at regular rate for steady employment. The scale for breakfast applies only to employees called at 5:00 a.m. or later. 4. No food server shall be required to wait on more than thirty (30) guests. It is mutually understood that the Employer will estimate one (1) food server to every thirty (30) guests. In case of overflow or any other emergency and the food server waits on more than the allowed thirty (30) guests, they will be paid forty cents ($.40) for each additional person. 5. Buffets: No employee shall be required to serve more than fifty (50) guests on a service buffet; on semi-service buffets, they may serve sixty (60) guests; on hors d'oeuvres and receptions one (1) food server for every eighty- five (85) guests. Capitol Plaza Holiday Inn 21 6/1/98 - 5/31/01 6. All banquet scales will be for a three (3) hour minimum. Setting up and overtime will be at the same hourly rate as the actual banquet. Where travel is involved employees will be paid the same hourly rate for time of travel. Employees who are requested to use their own car to transport other employees to and from the job shall receive an additional twenty cents ($.20) per mile for their car expense. This only applies to catered parties and banquets held over ten (10) miles from place of employment. 7. All banquet workers shall be called through the union except house steady banquet employees. All banquet gratuities and/or service charges are to be paid on the next payroll after the party has been paid for. Head banquet servers shall not receive less than fifty cents ($.50) per hour over the banquet scale. 8. All extra banquet employees will be paid on the next regular payroll of the Employer. 9. All banquet shifts will be individual shifts and paid for by the individual banquet scale for same; however, where two (2) or more banquets are worked in one (1) day in any one (1) house, the total pay cannot be below the State Minimum Wage including overtime and split shifts. (f) GUEST ROOM ATTENDANTS AND HOUSE PERSON'S DUTIES: 1. A guest room attendant will be required to change all linen daily, clean the bath, vacuum, dust, clean the windows and fixtures, replace light bulbs in lamps and anything else that is required to maintain the everyday cleanliness of a room. 2. A house person shall assist the guest room attendant by picking up trash and soiled linen from the attendant's cart, stock and maintain the linen closets, move furniture, vacuum and maintain halls or sidewalks, shampoo rugs and repair or replace items in a room, i.e., lamp shades, drapes, overhead light bulbs, stopped up drains, etc. 3. A guest room attendant shall not be required to do more than fifteen (15) rooms in one (1) day. If suites or apartments consist of more than one (1) room, each room in the suite or apartment shall be considered as a room for the total number of rooms for a day. Any additional rooms in excess of those called for in the above schedule, the employee shall be compensated at the rate of two dollars ($2.00) per room. If any dispute arises on the subject, the Employer agrees to discuss the matter with the Union in an effort to effect an amicable disposition of the complaint. 4. If a room contains two (2) or more rollaway cots, one (1) room will be reduced from the daily quota. (g) MAINTENANCE EMPLOYEES: Maintenance Worker I (Assistant Chief) In addition to performing all duties described under the other classifications of this department, the Maintenance Worker I may, under the supervision of the Chief of Maintenance, supervise a crew, assign them to their duties, devise shift schedules, be responsible for a preventative maintenance program and a M.S.D.S. program. The Maintenance Worker I must also possess a Class 2 - EPA certification. Capitol Plaza Holiday Inn 22 6/1/98 - 5/31/01 He may, subject to advance approval, order and purchase parts and supplies, call in contractors when necessary and keep management advised of his department's activities. He also coordinates maintenance work with other departments. Maintenance Worker II: Generally, under the direction of either Chief Engineer or the Maintenance Worker I, the Maintenance Worker II performs the duties itemized below, but is not limited to those duties. This outline is only a summary of the job responsibilities and is not considered a restrictive job description. Electrical: Repairs, replaces and maintains motors, controls, switches, and relay wiring. Changes ceiling light bulbs. Locates problems and diagnoses malfunction. Refrigeration/Air Conditioning: Repairs, replaces and recharges refrigeration/air condition systems, cleans oils, flushes liquid condensers, adjusts temperature and pressure controls, replaces and cleans filters, replaces certain components as may be required - usually short of major overhaul. Plumbing: Repairs, replaces and maintains all plumbing fixtures including faucets, flushometers, drains, toilets, sinks, showers, minor pipe failures, evaporative coolers, sprinklers, valves and pumps. Carpentry: Builds shelves, racks, partitions, platform, including remodeling. Constructs various items as required by Employer. Locks: Changes and repairs locks, make keys, install new locks. Roofing: Locates leaks or damage and repairs. Maintains all roofing mounted equipment. Floors: Repairs and replaces tiles, linoleum and/or carpet. Repairs or resurfaces floors. Walls: Patch and plaster, paint or vinyl, or otherwise repair walls and partitions including wall tile. Mount such items as mirrors, pictures, lamps, headboards and shelves. Heating: Maintains boiler components, gas and electrical, water heater, piping, valves and control systems. Furniture: Repairs any and all guest room and public area furnishings. Emergency Life Safety Systems: Bi-monthly testing and preventative maintenance, including repairs of fire sprinkler pumps and emergency lighting generator. Tests and replaces emergency lighting batteries. Maintenance Worker III (Helper/Utility Worker) Under the supervision of either the Chief Engineer or the Maintenance Worker I or II, the Utility worker performs the duties itemized below, but is not limited to those duties. This outline is only a summary of the job responsibilities and is not considered a restrictive job description. Electrical: Repairs, replaces switches, lamp cords and sockets, light fixtures, changes light bulbs. Air Conditioning/Heating: Cleans and replaces filters, cleans coils, adjust temperature controls, replaces faulty room units. Plumbing: Repairs, replaces and maintains all plumbing fixtures including flushometers, drains, toilets, sinks, showers, minor pipe failures. Maintains and back flushes swimming pools. Capitol Plaza Holiday Inn 23 6/1/98 - 5/31/01 Carpentry: Assists with building of shelves and racks. Constructs various items as required by the Employer. Roofing: Assists with roof leak repairs. Floors: Repair or replacement of tiles, linoleum and/or carpet. Walls: Patching, plastering, painting or vinyling of walls, including other repairs. Mount such items as mirrors, pictures, headboards and shelves. Furniture: Repair of any and all guest room and public area furnishings. (h) COMBINATION LAUNDRY WORKER/UNIFORM ROOM ATTENDANT: Duties: 1. Maintains employee uniforms 2. Makes minor alterations of uniforms and linen 3. Laundry work. Section 30. WAGE SCALES: SENIORITY INCENTIVE: Amount Beginning on hire date ------ ---------------------- 10 cents per hour 1st Anniversary 20 cents per hour 3rd Anniversary 30 cents per hour 5th Anniversary 40 cents per hour 10th Anniversary The above amounts will continue to be paid over the contract wage scale according to the individual's job classification and are not cumulative. * * * Effective on the date of contract ratification, January 22, 1999, all employees receiving a seniority incentive under the above provisions will continue to receive that same amount of incentive. However, that amount received is frozen for this contract term. Employees not yet eligible, and all new employees, will not become eligible for the seniority incentive during this contract term. WAGE SCALES - THE FIRST EFFECTIVE RAISE FOR ALL EMPLOYEES IS THE CONTRACT RATIFICATION DATE (January 22, 1999) TIPPED EMPLOYEES ---------------- BARTENDERS 1-22-99 6-1-99 6-1-2000 - ---------- ------- ------ -------- Service and/or Combination.......$7.32......$7.52........$7.72 Regular.......................... 7.13...... 7.33........ 7.53 Banquet: 6 hour guarantee............... 8.95...... 9.15........ 9.35 3 hour guarantee............... 9.45...... 9.65........ 9.85 Capitol Plaza Holiday Inn 24 6/1/98 - 5/31/01 FOOD SERVERS AND BUSPERSONS 1-22-99 6-1-99 6-1-2000 - --------------------------- ------- ------ -------- Food and Beverage Servers............$5.85..........$5.95..........$6.05 Bus Persons.......................... 5.85.......... 5.95.......... 6.05 Head Food Server..................... 6.05.......... 6.15.......... 6.25 Banquet Captain...................... 6.15.......... 6.25.......... 6.35 Dinners and Banquets (Food and Beverage Servers and Bus Persons) Breakfast, Lunch or Tea.............. 5.85.......... 5.95.......... 6.05 Dinner............................... 5.90.......... 6.00.......... 6.10 Dinners, commencing after 9:00 a.m... 6.05.......... 6.15.......... 6.25 BELLPERSONS/VALET PARKING ATTENDANTS - ------------------------------------ Bell Captain......................... 5.90.......... 6.00.......... 6.10 Bell Person.......................... 5.85.......... 5.95.......... 6.05 Valet Parking Attendants * *......... 5.85.......... 5.95.......... 6.05 * * A shift differential of $.25 per hour will be added to all hours worked on the graveyard shift. NON-TIPPED EMPLOYEES -------------------- DINING ROOM/BANQUETS - -------------------- Host Person, Cashier ................$6.55......... $6.90......... $7.25 Banquet Setup (after 5 p.m.).........$6.50.......... 6.85.......... 7.20 KITCHEN - ------- Lead Cook ...........................$9.25..........$9.60..........$9.95 Dinner, Second or Broiler Cook ...... 8.04.......... 8.39.......... 8.74 Fry Cook............................. 7.84.......... 8.19.......... 8.54 Pantry............................... 7.22.......... 7.57.......... 7.92 Kitchen Worker, Porter, Dishwasher... 6.52.......... 6.87.......... 7.22 FRONT DESK AND CLERICAL - ----------------------- Front Desk Shift Lead................$9.70..........$9.95.........$10.20 Front Desk (In Hire)................. 7.50.......... 7.75......... 8.00 Front Desk (After 6 months).......... 7.75.......... 8.00......... 8.25 Concierge (In Hire).................. 7.50.......... 7.75......... 8.00 Concierge (After 6 months)........... 7.75.......... 8.00......... 8.25 Reservations (In Hire)............... 7.50.......... 7.75......... 8.00 Reservations (After 6 months) ....... 7.75.......... 8.00......... 8.25 Capitol Plaza Holiday Inn 25 6/1/98 - 5/31/01 FRONT DESK AND CLERICAL 1-22-99 6-1-99 6-1-2000 - ----------------------- ------- ------ -------- Lead Night Auditor..................$ 9.85.........$10.10.........$10.35 Night Auditor....................... 9.25......... 9.50......... 9.75 PBX................................. 7.25......... 7.50......... 7.75 Store Room Clerk.................... 6.76......... 7.11......... 7.46 MAINTENANCE - ----------- Maintenance I (Assistant Chief)..... 16.30......... 16.65......... 17.00 Maintenance II (In hire)............ 12.30......... 12.65......... 13.00 Maintenance II (After One Year)..... 12.65......... 13.00......... 13.35 Maintenance III..................... 10.00......... 10.35......... 10.70 SECURITY - -------- Security Guards..................... 7.40......... 7.75......... 8.10 Night Security (11 p.m. to 7 a.m.).. 9.10......... 9.45......... 9.80 (Includes M.O.D. Responsibilities) HOUSEKEEPING - ------------ Guest Room Attendant................$ 6.57.........$ 6.97.........$ 7.42 Room Inspector...................... 6.67......... 7.07......... 7.52 Laundry Worker...................... 6.83......... 7.23......... 7.68 Laundry Worker/Guest Room Attendant. 6.83......... 7.23......... 7.68 Head Houseperson.................... 9.23......... 9.63......... 10.08 Houseperson/Lobby................... 6.67......... 7.07......... 7.52 Houseperson/Shampooer............... 9.03......... 9.43......... 9.88 Linen Room Attendant................ 6.57......... 6.97......... 7.42 Laundry Worker/Uniform/Seamstress... 6.83......... 7.23......... 7.68 Capitol Plaza Holiday Inn 26 6/1/98 - 5/31/01 Section 31. SIGNATURES: IN WITNESS WHEREOF, the parties hereto have set their hands and seals this day of , 1999. FOR THE UNION: FOR THE EMPLOYER: Hotel Employees and Holiday Inn - Restaurant Employees Capitol Plaza Sacramento Union Local 49 by: /s/ Joseph A. McLaughlin by: Joseph A. McLaughlin Robert Niehaus President-Business Manager Regional Vice President by: /s/ Rebecca Garcia by: Rebecca Garcia Jerry Temple Secretary-Treasurer General Manager Capitol Plaza Holiday Inn 27 6/1/98 - 5/31/01 ADDENDUM "A" ------------ It is hereby agreed between the Capitol Plaza Holiday Inn and Hotel Employees and Restaurant Employees Union Local 49 that the Gift Shop be suspended from the Collective Bargaining Agreement until such time as the Gift Shop returns under the business operation of the Capitol Plaza Holiday Inn, or there is a change in management from that which is in the contract at the time this contract is signed. ADDENDUM "B" ------------ SCHEDULES - --------- 1. After your scheduled day off you must call in to check your schedule (6:30 am - 4 pm the day before you are due back). 2. On-call personnel must phone in each day that you are placed on call between the hours of 6:30 am and 7:30 am. (The day of on-call status.) 3. Housekeeping personnel must not report to work without checking their schedule prior to coming in. 4. Employees switching days off must get 5 days prior written approval. 5. Request for days off must be given 5 days in advance. You must receive prior approval from the Housekeeping Manager. ADDENDUM "C" ------------ Reference Section 24(b) - Dues Deduction. FOR THE UNION: FOR THE EMPLOYER: Hotel Employees and Restaurant CAPITOL PLAZA Employees Union Local 49 HOLIDAY INN by: /s/ Joseph A. McLaughlin by: Joseph A. McLaughlin Robert Niehaus President-Business Manager Regional Vice President by: /s/ Rebecca Garcia by: Rebecca Garcia Jerry Temple Secretary-Treasurer General Manager Capitol Plaza Holiday Inn 28 6/1/98 - 5/31/01 ADDENDUM "C" ------------ Hotel Employees and Restaurant Employees International Union, AFL-CIO - --------------------------------------------------- (Print name of Employee) - --------------------------------------------------- ------------------------- (Print name of Employer) (Date) I hereby request and accept membership in the Hotel Employees and Restaurant Employees International Union, Local _______, AFL-CIO, and designate and authorize it and any subordinate body of the International Union with which it is affiliated, to represent me in collective bargaining in all matters relating to my wages, hours and conditions of employment, and to negotiate and execute agreements covering same. In making this request and in accepting membership, I hereby agree to be bound by the Constitution, laws, rules, policies and/or regulations of the above International Union, the local union, and Joint Board with which the local union is affiliated, if any, and any other affiliated local union and/or Joint Board to which I may hereafter transfer or become a member of. You may refrain from becoming a member by still paying union dues and initiation fees, or an amount in lieu of dues and initiation fees which represent the Union's cost germane to representing employees. For more information, write Department B, HEREIU, 1219 28th Street, NW, Washington, DC 20007. * * * * * * I hereby authorize and direct my above-mentioned employer to deduct from my wages, each and every month, dues, initiation fees, or reinstatement fees (not exceeding initiation fees) which I am required to pay as a condition of maintaining membership in good standing of said union, which I assign to said union, and I direct that same be forwarded each month to said union. This authorization and direction shall be irrevocable for a period of one (1) year or until the termination of the collective bargaining agreement between my employer and said union, whichever occurs sooner, and I agree and direct that this authorization and direction shall be automatically renewed, and shall be irrevocable for the successive periods of one (1) year each or for the period of each succeeding applicable collective bargaining agreement between my employer and said union whichever shall be shorter, unless written notice is given by me to the employer and said local not more than twenty (20) days and not less than ten (10) days prior to the expiration of each period of one (1) year, or the expiration of each applicable agreement between my employer and said union, whichever occurs sooner. If you do not wish the above to apply, but prefer to pay your dues and initiation fees and other voluntary charges, if any, referred to above to the office of the local union every month, initial here. -------- *SEE IMPORTANT INFORMATION ---------------------------------------------- ON REVERSE SIDE (Signature of Employee) - ---------------------------------- ----------------------------------------- (Telephone Number) (Address) - ---------------------------------- ----------------------------------------- (Type of Work) (Social Security No.) EX-13.1 3 JOHN Q. HAMMONS 1999 ANNUAL REPORT Tilling the soil. The finest hotels. The best locations. The most resilient markets. The highest standards. Sowing the seeds. Six impressive additions. One unwavering philosophy. Increasing the yield. Improving operations. Streamlining the portfolio. Advancing technology. Reinvesting in the company. The end of the day. Renewing the focus. Working harder. Creating a greater return. Hard work and persistence will bring a bountiful harvest to everyone at the table. A letter to the shareholders. [PICTURE] In 1998, John Q. Hammons Hotels, Inc. (the "Company") planted the seeds of success for the Company's long-term growth and increased performance. In the ensuing months, we will remain true to our goals and believe that our strategy will bring a bountiful harvest in the year 2000, taking the form of enhanced shareholder value and increased earnings. Reviewing 1999, it is clear that our work is helping the Company grow to its full potential: . We have constructed the finest hotels in the country and placed them in rapidly growing markets where they have established dominance. . We have taken steps to improve the quality and performance of existing hotels and have sold properties not performing up to our standards. . We have invested in our people and technologies to ensure the finest service in the industry. . We have reinvested in the company to take advantage of our undervalued stock. As we move into the 21st century, John Q. Hammons Hotels, Inc. owns and manages more than 50 hotels, with all properties located in resilient markets and ranked among the top three performers in each market. Set to Grow. In the spring of 2000, John Q. Hammons Hotels, Inc. will complete a five-year period of development that has reduced the average age of our hotel portfolio to less than seven years. Adding to our already impressive portfolio of properties, we opened the Hampton Inn & Suites in Mesquite, Texas, on April 15, 1999; the Radisson Resort Hotel in Coral Springs, Florida, on May 1, 1999; the Embassy Suites Outdoor World at Dallas/Ft. Worth International Airport in Grapevine, Texas, on August 3, 1999; and the Renaissance Suites Hotel in Charlotte, North Carolina, on December 22, 1999. Our hotels are located in markets that are experiencing rapid growth, enabling each property to take advantage of emerging markets and secure the dominant position in their respective locations. Demand generators such as major international airports, state capitals, colleges and universities, downtown convention centers and major corporate headquarters make our properties less susceptible to market fluctuations. These locations also offer a ready market for meeting space, which drives high occupancy levels, solid average daily rates, and high revenue per available room (RevPAR). With the addition of the new properties, our hotels offer a total of 1.6 million square feet of convention and meeting space--more than any other hotel management company in the United States. In June, the company sold the Holiday Inn Express Hotel and Conference Center in Joliet, Illinois. We extended our relationship with Marriott International in July, adding the World Golf Village Resort Hotel and Convention Center in St. Augustine, Florida, to our portfolio of hotels that fly the Renaissance flag. The World Golf Village Renaissance Resort was connected to the Renaissance reservation system on July 19, 1999. Following the first quarter 2000 opening of the Embassy Suites in North Charleston, South Carolina, and the Renaissance Myriad Center in Oklahoma City, Oklahoma, the Company has no additional development plans for the near future. Overall, our hotel portfolio is among the top industry performers, increasing revenue and EBITDA in each of the past six years. And we continually review these items to ensure we are maximizing returns in all the markets we serve. 2 Season After Season. Without question, new full-service hotels that offer modern amenities consistently outperform the industry average. John Q. Hammons Hotels, Inc. is committed to keeping our hotels updated so we continue to outperform industry standards. Each property is constructed to meet the most discriminating standards, ensuring that the property will hold its value and withstand the wear of daily operations, time and weather for many years to come. We have also made significant investments in our mature properties to ensure that these hotels continue to meet the highest standards for quality furnishings and deluxe amenities. In May, we signed an agreement with CAIS Internet, a Washington, D.C.-based developer of high-speed Internet technology. CAIS is equipping each of our hotels with its OverVoice technology, which will allow our guests to access the Internet and their email at 175 times the speed of a standard 56K modem. Along with signature design elements such as the atrium lobby, luxury amenities, personal service desks, business centers, and audiovisual support services, John Q. Hammons Hotels, Inc. offers superior value for our guests. It is little wonder that our properties are consistently ranked among the top performers by their respective franchisers. Only the Best Work on Our Crew. In addition to our impressive hotels, we uphold the highest standards for our people. Among our 8,000 employees are many who have served the company for more than 25 years. Our employees take pride in their work and are fully committed to the ideals of service and attention to detail that have been the hallmark of John Q. Hammons Hotels, Inc. for more than 40 years. Through ongoing training, recognition programs and promoting from within, we continually strive to let our people know how important they are to our future. As a result, John Q. Hammons Hotels, Inc. enjoys one of the lowest turnover rates in the industry--an important measure of success in today's competitive labor market. In 1999, we strengthened our already solid management team by adding two senior executives--Vice President of Human Resources Kent Foster and Southern Regional Vice President Tom Harwell--and promoting District Director Veanne Stocking to the position of Rocky Mountain Regional Vice President. Kent Foster has more than 14 years of experience in human resources. The creation of a human resources position provides our company with the strategic focus that will help us retain and attract the best employees in the industry. Prior to joining John Q. Hammons Hotels, Inc., Foster served as a member of negotiating teams involved in discussions with the United States Steel Workers of America and the United Auto Workers of America. Tom Harwell brings more than 18 years of experience in the hotel and hospitality industry. For the past five years he has served as vice president of operations for Lane Hospitality in Houston. As we enter the new millennium, John Q. Hammons Hotels, Inc. is stronger than ever. Our core company strategies remain true to the vision of our founder and we are committed to attaining our goals. Bottom line, John Q. Hammons Hotels, Inc.'s properties perform better and operate more profitably than our competition. We invite you to share in our success. Sincerely, /s/John Q. Hammons /s/ Kenneth J. Weber John Q. Hammons Kenneth J. Weber Founder Executive Vice President Chairman & CEO Chief Financial Officer [PICTURE] [PICTURE] 3 1999 annual report [PICTURE] The atrium at Embassy Suites Outdoor World Grapevine, Texas 4 The John Q. Hammons team. [PICTURE] Seated: Kenneth Weber, John Q. Hammons First Row: Debra Mallonee Shantz, Kent Foster, Lonnie Funk, Paul Muellner, Jacqueline Dowdy, Steve Minton Second Row: Bill George, John Fulton, Pat Shivers, Bob Fugazi, Bill Mead Third Row: Joe Morrissey, Tom Harwell, Bob Niehaus, Veanne Stocking, Mark Gundlach 5 1999 annual report [PICTURE] The ballroom at the Radisson Resort Coral Springs Coral Springs, Florida 6 Tilling the soil. More than 40 years ago, John Q. Hammons set out to build the finest hotels in the country and to manage these hotels to the highest standards. Mr. Hammons' core philosophy is simple and unwavering: . Select markets that are primed for growth. . Choose locations that offer multiple attractions to drive revenues. . Build hotels using the finest quality materials and construction methods. . Affiliate with well-known brands. Today, the Company that bears his name has amassed a portfolio of hotels and resorts that consistently outperforms the industry and individual properties that are at the top of their respective market segments. John Q. Hammons Hotels, Inc. owns and/or manages 50 hotels in 20 states, representing 12,203 rooms and more than 1.6 million square feet of meeting space. The average age of our portfolio is less than seven years. Our hotels rank in the top three performers in market penetration in every market we serve. Eighteen of our hotels are number one in their respective markets.* Each of our markets themselves is a strong performer, offering multiple revenue generators such as state capitals, major universities, corporate headquarters, airports and major office and business parks. These characteristics of a community drive meeting, room, and food and beverage revenues. We specifically target markets that offer an environment less susceptible to economic downturns. This enables each of our properties to tap several different sources in order to drive meetings business. Over the years, our hotels have been recognized by our franchise partners, and throughout the industry, for their stellar performance and quality. In the past, our properties have received Torchbearer honors and Awards of Excellence from Bass Hotels & Resorts Worldwide and the Pinnacle and Rose Awards from Promus Hotel Corporation. The tradition continued in 1999 with the World Golf Village Renaissance Resort being awarded the Renaissance Conversion of the Year and Tuscon Marriott winning the Market Excellence Award as well as Franchise Hotel of the Year.
JOHN Q. HAMMONS HOTELS, INC. 1999 2000 OWNED HOTELS Number of Hotels 45 47 Number of Rooms 11,067 11,633 MANAGED HOTELS Number of Hotels 5 6 Number of Rooms 1,136 1,356 TOTAL Number of Hotels 50 53 Number of Rooms 12,203 12,989
*Rank based on 1999 Smith Travel Research. 7 1999 annual report [WORLD GOLF VILLAGE RENAISSANCE RESORT] World Golf Village Renaissance Resort St. Augustine, Florida 8 [PHOTO] Sowing the seeds. In 1998, John Q. Hammons Hotels, Inc. elected to suspend new development in an effort to generate greater returns for our investors. At that time, the Company had five hotels under development, all of which will be open by first quarter 2000. In April, John Q. Hammons Hotels, Inc. opened the Hampton Inn & Suites Rodeo Center in Mesquite, Texas. The largest Hampton Inn & Suites property in the world, the hotel features 160 rooms and suites and more than 21,000 square feet of meeting space. It is located adjacent to the Rodeo Arena and is the premier meeting and convention center hotel in the eastern Dallas/Ft. Worth area. After opening in May, the Radisson Resort Hotel in Coral Springs, Florida, near Boca Raton, has quickly become a center for meetings and social events in this affluent south Florida community. The hotel features a 30,000-square-foot conference center, 224 rooms, and is located adjacent to the Tournament Players Club at Heron Bay and near the Sawgrass Mills Outlet Mall. In August, the Embassy Suites Outdoor World at Dallas/Ft. Worth International Airport opened and achieved full occupancy in less than one month. Located in Grapevine, Texas, this 329-suite hotel features more than 21,000 square feet of meeting space and is connected to the 200,000-square-foot Bass Pro Shops(R) Outdoor World. In December, we opened the first Renaissance hotel built since the brand's acquisition by Marriott Corporation in 1997-the Renaissance Suites Hotel in Charlotte, North Carolina. Located adjacent to the Charlotte Coliseum and near Douglas International Airport, the hotel features 275 suites and more than 30,000 square feet of meeting space. In January 2000, construction of the 15-story Renaissance Oklahoma City Hotel will complete a $300 million downtown redevelopment project that includes a major sports arena and expansion of the 100,000-square-foot Myriad Convention Center, connected to the hotel by an enclosed walkway. Opening in February 2000, the Embassy Suites Charleston in North Charleston, South Carolina, adjoins the new Charleston Area Convention Center Complex and offers 255 suites. When combined with the Convention Center Complex, the hotel offers more than 135,000 square feet of meeting space. By creating the strongest hotel portfolio in the industry and allowing that portfolio to reach its full potential, John Q. Hammons Hotels, Inc. is well- positioned to generate greater earnings and profits. [MESQUITE] [CORAL SPRINGS] [DALLAS/FT. WORTH] [CHARLOTTE]
9 1999 annual report [PICTURE APPEARS HERE] Chateau on the Lake Branson, Missouri 10 [PICTURE APPEARS HERE] Increasing the yield. We continually monitor the performance of our individual hotels, as well as overall operations, to ensure that our portfolio and our Company are reaching peak performance. In 1998, we sold the Holiday Inn Hotel & Convention Center in Fresno, California, and in 1999, we sold the Holiday Inn Express in Joliet, Illinois, closing the sale on this property in June. In July 1999, we added the World Golf Village Resort Hotel & Convention Center in St. Augustine, Florida, to our portfolio of hotels that fly the Renaissance flag, re-christening the property as the World Golf Village Renaissance Resort. The hotel was connected to the Renaissance reservation system on July 19. The World Golf Village Renaissance Resort is a Mobil Four-Star resort with 300 elegant guest rooms and suites and more than 40,000 square feet of meeting space. Located adjacent to the World Golf Hall of Fame in the heart of World Golf Village, the resort overlooks "The Slammer and the Squire," a Sam Snead- and Gene Sarazen-designed championship 18-hole golf course that annually hosts the Senior PGA Tour's Liberty Mutual Legends of Golf tournament. Our hotels are designed for business travelers and feature a soothing and secure atrium design, oversized guest rooms with dual-line telephones and modem ports, corporate business centers, audiovisual equipment, and technical support. To ensure that we continue to meet the needs of business traveler guests, John Q. Hammons Hotels, Inc. signed an agreement in May with Washington, D.C.-based CAIS Internet to equip all of our hotels with their OverVoice technology. This technology supplements our existing PBX systems allowing our guests access to the Internet at 175 times the speed of a 56K modem. In 1998, we joined with Food Insights, Inc. to create a centralized food purchasing and monitoring program that has saved John Q. Hammons Hotels, Inc. more than $900,000 to date and has greatly improved the profitability and overall quality of our food and beverage departments. As stated in last year's annual report, John Q. Hammons Hotels, Inc.'s board of directors authorized the Company to repurchase up to $3 million in outstanding Company stock, which we believe to be undervalued. During the 1999 Fiscal Year, the Company acquired 744,200 shares of stock at an average price of $4.03 per share. We believe this stock repurchase represents a solid investment for the Company and we will continue this investment in the future. 11 1999 annual report [PICTURE APPEARS HERE] Renaissance Charlotte Suites Hotel Charlotte, North Carolina 12 The end of the day. Forty years ago, our founder set forth on a mission to create the finest and best-located hotels in the country. As his vision has grown into a portfolio of high-performing properties in resilient markets, the Company he started has set forth on a new mission focused on increasing the yield for our shareholders. Two years ago, we renewed our focus on achieving these goals. We have stayed true to this objective and steadfast on a commitment to increasing shareholder value. We are allowing our upstart hotels to mature without the burden of additional development. We continue to streamline operations by improving our technology and service in order to maintain the level of service expected by the modern business traveler. And we continue to hire and train only the very best employees in the hospitality industry. At the end of the day, we remain ever optimistic that our hard work will pay off and create even greater returns in the years to come. [PICTURE OF OKLAHOMA CITY APPEARS [PICTURE OF NORTH CHARLESTON APPEARS HERE] HERE] Opening in 2000 13 1999 annual report [PICTURE OF EMBASSY SUITES APPEARS HERE] The atrium at the Embassy Suites Greenville Greenville, South Carolina 14 [PHOTO APPEARS HERE] The harvest. Company Profile John Q. Hammons Hotels, Inc. and its subsidiaries (collectively, the "Company") is a leading independent owner, manager, and developer of affordable upscale hotels in market-driven locations. The Company owns 45 hotels located in 19 states containing 11,067 guest rooms and suites (the "Owned Hotels") and manages five additional hotels located in two states containing 1,136 guest rooms (the "Managed Hotels"). On December 31, 1999, the Company was at various stages of development on two upscale hotels which opened during the first quarter of 2000 (the "Scheduled Hotels"). The Company will suspend development after the completion of the Scheduled Hotels. The Company's existing 50 Owned Hotels and Managed Hotels (together, the "JQH Hotels") operate primarily under the Embassy Suites and Holiday Inn trade names. Most of the Company's hotels are near a state capital, university, airport, corporate headquarters, plant, or other major facility. The Company's strategy is to increase cash flow and thereby enhance shareholder value primarily through (i) capitalizing on positive operating fundamentals in the upscale full-service sector of our markets and improving the operating results of our newer hotels, (ii) converting the franchises of its existing hotels to franchise brands that are considered to be more upscale, and (iii) selling certain mature assets and reinvesting the net proceeds. The Company has designed each New Hotel to meet the specific needs of the market and has engaged in selling efforts months in advance of the hotels' opening. The Company's entire management team, including senior management, architects, design specialists, hotel managers, and sales personnel, is involved in the development and continuing operations of each hotel. The JQH Hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups and conventions, and leisure travelers. Each of the JQH Hotels is individually designed by the Company and most contain an impressive multistoried atrium, expansive meeting space, large guest rooms or suites, and comfortable lounge areas. The JQH Hotels meeting facilities can be readily adapted to accommodate both large and small meetings, conventions, and trade shows. The 14 Embassy Suites JQH Hotels are all-suite hotels, which appeal to the traveler needing or desiring greater space and specialized services. The 17 Holiday Inn JQH Hotels (owned and managed) are affordably priced hotels designed to attract the business and leisure traveler desiring quality accommodations. Management of the JQH Hotels is coordinated from the Company's headquarters in Springfield, Missouri, by its senior management team. Six regional vice presidents and one district director are each responsible for supervising a group of general managers of JQH Hotels in day-to-day operations. Centralized management services and functions include development, design, sales and marketing, purchasing, and financial controls. Through these centralized services, significant cost savings are realized due to economies of scale. 15 1999 annual report Stock Price Per Share UNAUDITED QUARTERLY STOCK INFORMATION The Company's Class A Common Stock (the "Class A Common Stock") has been listed on the New York Stock Exchange since November 23, 1994, until February 28, 2000, when it began trading on the American Stock Exchange under the symbol "JQH." Prior to that date, the Company's Class A Common Stock was not publicly traded. The following sets forth the high and low closing sales prices of Class A Common Stock for the period indicated, as reported by the New York Stock Exchange Composite Tape:
1998 HIGH LOW FIRST QUARTER $ 8 15/16 $ 7 11/16 SECOND QUARTER $ 8 $ 6 13/16 THIRD QUARTER $ 7 3/16 $ 3 11/16 FOURTH QUARTER $ 4 1/2 $ 3 3/16 1999 HIGH LOW FIRST QUARTER $ 5 1/2 $ 3 9/16 SECOND QUARTER $ 4 7/16 $ 3 1/2 THIRD QUARTER $ 4 1/2 $ 3 3/4 FOURTH QUARTER $ 4 3/16 $ 3 5/16
On March 10, 2000, the last reported sales price of the Class A Common Stock on the AMEX was $4.00. On March 10, 2000, the Company had approximately 2,500 holders of Class A Common Stock on record. SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY The selected consolidated financial information of the Company for the 1999, 1998, 1997, 1996, and 1995 Fiscal Years has been derived from, and should be read in conjunction with, the audited consolidated financial statements of the Company, which statements have been audited by Arthur Andersen LLP, independent public accountants. The information presented next should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this report. The Company's fiscal year ends on the Friday nearest December 31. 16 Selected Consolidated Financial Information (in thousands, except per share amounts, ratios and hotel data)
Fiscal year ended 1999 1998 1997 1996 1995 REVENUES Rooms (a) $ 229,807 $ 211,989 $ 195,296 $ 171,206 $148,432 Food and beverage 101,231 91,982 86,183 79,580 70,840 Meeting room rental and other (b) 25,410 22,159 20,795 18,061 15,907 --------- --------- --------- --------- -------- Total revenues 356,448 326,130 302,274 268,847 235,179 --------- --------- --------- --------- -------- OPERATING EXPENSES Direct operating costs and expenses (c) Rooms 59,507 54,600 50,265 43,610 38,543 Food and beverage 68,799 64,174 62,383 57,956 54,228 Other 3,667 3,389 3,385 2,929 2,521 General, administrative, sales, and management service expenses (d, e) 104,876 95,500 85,766 74,646 64,234 Repairs and maintenance 15,059 13,438 12,578 11,528 10,131 Depreciation and amortization 45,669 45,580 34,781 24,034 18,346 --------- --------- --------- --------- -------- Total operating expenses 297,577 276,681 249,158 214,703 188,003 --------- --------- --------- --------- -------- INCOME FROM OPERATIONS 58,871 49,449 53,116 54,144 47,176 Other (income) expenses Interest expense and amortization of deferred financing fees, net 62,209 57,286 44,325 35,620 28,447 Gain on property disposition (f) (2,365) (8,175) ---- ---- ---- --------- --------- --------- --------- -------- INCOME (LOSS) BEFORE MINORITY INTEREST, PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (g)(m) (973) 338 8,791 18,524 18,729 Minority interest in (earnings) losses of partnership 698 (242) (6,302) (13,280) (13,427) --------- --------- --------- --------- -------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (275) 96 2,489 5,244 5,302 Provision for income taxes (h) (150) (120) (75) (105) (107) --------- --------- --------- --------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (425) $ (24) $ 2,414 $ 5,139 $ 5,195 ========= ========= ========= ========= ======== BASIC AND DILUTED INCOME (LOSS) PER SHARE OF COMMON STOCK BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (0.07) $ --- $ 0.38 $ 0.81 $ 0.82 ========= ========= ========= ========== ========
17 1999 annual report Continued
FISCAL YEAR ENDED 1999 1998 1997 1996 1995 Other Data EBITDA (i) $ 104,540 $ 95,029 $ 87,897 $ 78,178 $ 65,522 Net Cash provided by operating activities 41,254 43,494 27,769 72,052 44,037 Net Cash used in investing activities (100,216) (92,925) (193,271) (136,296) (78,085) Net Cash provided by financing activities 62,456 53,703 161,014 68,916 66,113 MARGIN AND RATIO DATA EBITDA margin (% of total revenue) (i) 29.3% 29.1% 29.1% 29.1% 27.9% Earnings to fixed charges ratio (j) 0.89x 0.91x 0.97x 1.26x 1.39x OPERATING DATA Owned Hotels: Number of Hotels 45 42 45 39 37 Number of Rooms 11,067 10,293 11,108 9,666 9,312 Average Occupancy 62.9% 62.1% 62.9% 64.7% 67.1% Average Daily Room Rate (ADR) $ 94.87 $ 91.38 $ 82.38 $ 76.16 $ 71.68 Room Revenue per Available Room (RevPAR)(k) $ 59.64 $ 56.79 $ 51.84 $ 49.25 $ 48.09 Increase in Yield (l) 5.0% 9.5% 5.3% 2.4% 4.8% BALANCE SHEET DATA Total Assets $ 934,312 $876,486 $ 816,733 $ 658,072 $542,371 Total Debt, including current portion 828,843 759,716 695,791 531,143 458,094 Minority interest of holders of the LP units 25,251 27,392 39,399 33,662 23,082 Equity 13,855 17,847 18,508 16,094 10,955
(a) Includes revenues derived from rooms. (b) Includes meeting room rental, management fees for providing management services to the Managed Hotels and other. (c) Includes expenses incurred in connection with rooms, food and beverage, and telephones. (d) Includes expenses incurred in connection with franchise fees, administrative, marketing, and advertising, utilities, insurance, property taxes, rent, and other. (e) Includes expenses incurred providing management services to the Managed Hotels. (f) Gain on sales includes six hotels sold February 6, 1998, one hotel sold December 31, 1998, and one hotel sold June 16, 1999. (g) The 1995 Fiscal Year does not include a $0.3 million extraordinary charge related to prepayment fees on early debt retirement in connection with the Note Offerings and Common Stock Offering. The 1998 and 1999 Fiscal Years do not include a $2.2 million and a $0.2 million, respectively, extraordinary charge related to early extinguishment of debt. (h) The Company has been taxed as a C Corporation on its portion of the Partnership's earnings. (i) EBITDA represents earnings before net interest expense, provision for income taxes (if applicable) and depreciation and amortization. EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage, and liquidity. Such data are not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net earnings as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. (j) Earnings used in computing the earnings to fixed charges ratios consist of net income plus fixed charges. Fixed charges consist of interest expense and that portion of rental expense representative of interest (deemed to be one-third of rental expense). (k) Total room revenue divided by number of available rooms. Available rooms represent the number of rooms available for rent multiplied by the number of days in the period presented. (l) Increase in yield represents the period-over-period increases in yield. Yield is defined as the room revenue per available room (RevPAR). (m) The Company adopted a new accounting pronouncement in 1999 which requires cost of start up activities, including pre-opening expenses, to be expensed as incurred. The 1999 Fiscal Year does not include a $1.8 million charge related to the change in accounting principle. 18 Management's Discussions and Analysis of Financial Condition and Results of Operations General The following discussion and analysis primarily addresses results of operations of the Company for the fiscal years ended December 31, 1999 ("1999"), January 1, 1999 ("1998"), and January 2, 1998 ("1997"). The following discussion should be read in conjunction with the selected consolidated financial information of the Company and the consolidated financial statements of the Company included elsewhere herein. The Company's consolidated financial statements include revenues from the Owned Hotels and management fee revenues for providing management services to the Managed Hotels. References to the JQH Hotels include both the Owned Hotels and the Managed Hotels. Revenues from the Owned Hotels are derived from rooms, food and beverage, meeting rooms, and other revenues. The Company's beverage revenues include only revenues from the sale of alcoholic beverages, while revenues from the sale of nonalcoholic beverages are shown as part of food revenues. Direct operating costs and expenses include expenses incurred in connection with the direct operation of rooms, food and beverage, and telephones. General, administrative, sales and management services expenses include expenses incurred from franchise fees, administrative, sales and marketing, utilities, insurance, property taxes, rent, management services, and other expenses. From 1995 through 1999, the Company's total revenues grew at an annual compounded growth rate of 10.9%, from $235.2 million to $356.4 million. Occupancy for the Owned Hotels during that period decreased 4.2 percentage points from 67.1% to 62.9%. However, the Owned Hotels' average daily room rate (ADR) increased by 32.4% from $71.68 to $94.87 during that period. Room revenue per available room (RevPAR) increased by 24.0% from $48.09 to $59.64. In general, hotels opened during the period from 1995 to 1999 decreased overall occupancy, but increased the overall average room rate. The Company tracks the performance of the Owned Hotels in two groups. One group of hotels are those opened by the Company during the current and prior fiscal years (New Hotels). During 1999, the New Hotels included four hotels opened in 1999 and four hotels opened in 1998. The remainder of the Owned Hotels, excluding the New Hotels, are defined as Mature Hotels. In 1999, the Mature Hotels included 37 hotels opened prior to 1998. New Hotels typically generate positive cash flow from operations before debt service in the first year, generate cash sufficient to service mortgage debt in the second year and create positive cash flow after debt service in the third year. 19 1999 annual report Results of Operations of the Company
FISCAL YEAR ENDED 1999 1998 1997 1996 1995 OWNED HOTELS Average Occupancy 62.9% 62.1% 62.9% 64.7% 67.1% Average Daily Room Rate (ADR) $ 94.87 $ 91.38 $ 82.38 $ 76.16 $ 71.68 Room Revenue per Available Room (RevPAR) $ 59.64 $ 56.79 $ 51.84 $ 49.25 $ 48.09 Available Rooms (a) 3,853,403 3,733,166 3,767,387 3,476,279 3,087,700 Number of Hotels 45 42 45 39 37 MATURE HOTELS Average Occupancy 64.7% 64.1% 63.8% 64.8% 67.1% Average Daily Room Rate (ADR) $ 93.60 $ 86.50 $ 79.80 $ 76.06 $ 71.68 Room Revenue per Available Room (RevPAR) $ 60.57 $ 55.41 $ 50.90 $ 49.29 $ 48.09 Available Rooms (a) 3,332,718 3,012,845 3,388,896 3,454,899 3,087,700 Number of Hotels 37 32 37 37 37 NEW HOTELS Average Occupancy 51.0% 54.1% 55.3% 42.2% ---- Average Daily Room Rate (ADR) $ 105.25 $ 115.55 $ 108.97 $ 100.49 ---- Room Revenue per Available Room (RevPAR) $ 53.70 $ 62.54 $ 60.21 $ 42.42 ---- Available Rooms (a) 520,685 720,321 378,491 21,380 ---- Number of Hotels 8 10 8 2 ---- PERCENTAGES OF TOTAL REVENUES REVENUES Rooms 64.5% 65.0% 64.6% 63.7% 63.1% Food and beverage 28.4% 28.2% 28.5% 29.6% 30.1% Meeting room rental and other 7.1% 6.8% 6.9% 6.7% 6.8% ---------- ---------- ---------- ----------- --------- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% ---------- ---------- ---------- ----------- --------- OPERATING EXPENSES Direct operating costs and expenses Rooms 16.7% 16.7% 16.6% 16.2% 16.4% Food and beverage 19.3% 19.7% 20.6% 21.6% 23.0% Other 1.0% 1.0% 1.1% 1.1% 1.1% General, administrative, sales, and management service expenses 29.4% 29.3% 28.4% 27.8% 27.3% Repairs and maintenance 4.2% 4.1% 4.2% 4.3% 4.3% Depreciation and amortization 12.8% 14.0% 11.5% 8.9% 7.8% ---------- ---------- ---------- ----------- --------- Total operating expenses 83.4% 84.8% 82.4% 79.9% 79.9% ---------- ---------- ---------- ----------- --------- Income from Operations 16.6% 15.2% 17.6% 20.1% 20.1% ========== ========== ========== =========== =========
(a) Available rooms represent the number of rooms available for rent multiplied by the number of days in the period reported or, in the case of New Hotels, the number of days the hotel was open during the period reported. The Company's 1996 Fiscal Year contained 53 weeks, or 371 days, while its 1995, 1997, 1998, and 1999 Fiscal Years each contained 52 weeks, or 364 days. 20 1999 FISCAL YEAR COMPARED TO 1998 FISCAL YEAR Total revenues increased to $356.4 million in 1999 from $326.1 million in 1998, an increase of $30.3 million, or 9.3%. Of total revenues recognized in 1999, 64.5% were revenues from rooms, compared to 65.0% in 1998. Revenues from food and beverage represented 28.4% of total revenues recognized in 1999, compared to 28.2% in 1998, and revenues from meeting room rental and other represented 7.1% of total revenues compared to 6.8% in 1998. Rooms revenues increased to $229.8 million in 1999 from $212.0 million in 1998, an increase of $17.8 million, or 8.4%, as a result of the addition of four hotels opened in 1999, a full year of operation for the four hotels opened in 1998, and an increase in the average daily room rate (ADR) of the Mature Hotels. Average daily room rates (ADR) of Mature Hotels increased to $93.60 in 1999 from $86.50 in 1998. The occupancy in the Mature Hotels was a 0.6 percentage point increase to 64.7% in 1999, compared to 64.1% in 1998. The Mature Hotels' room revenue per available room (RevPAR) improved to $60.57 in 1999 from $55.41 in 1998, an increase of $5.16 or 9.3%. In 1999, the New Hotels included eight hotels, which generated a revenue per available room (RevPAR) of $53.70, down 14.1% from the 1998 revenue per available room (RevPAR) of $62.54, when ten New Hotels were opened. In general, management believes the New Hotels are more insulated from the effects of New Hotel supply than are the Mature Hotels, since the New Hotels utilize franchise brands that are considered to be more upscale in nature, and the New Hotels have higher-quality guest rooms and public spaces. Food and beverage revenues increased to $101.2 million in 1999 from $92.0 million in 1998, an increase of $9.2 million, or 10.0%. This increase was primarily due to revenues associated with the New Hotels. Meeting room rental and other revenues increased to $25.4 million in 1999 from $22.2 million in 1998, an increase of $3.2 million, or 14.4%. This increase was primarily due to the additional meeting space in the New Hotels. Direct operating costs and expenses for rooms increased to $59.5 million in 1999 from $54.6 million in 1998, an increase of $4.9 million, or 9.0%. As a percentage of rooms revenue, these expenses increased slightly to 25.9% in 1999 from 25.8% in 1998. The increased expense was associated with the New Hotels. These costs generally represent a higher percentage of rooms revenue in newer hotels until these hotels reach stabilized occupancy levels. Direct operating costs and expenses for food and beverage increased to $68.8 million in 1999 from $64.2 million in 1998, an increase of $4.6 million, or 7.2%, but decreased slightly as a percentage of food and beverage revenues to 68.0%, from 69.8% in 1998. The dollar increase was due to costs associated with the higher volume of sales associated with the New Hotels. Direct operating costs and expenses for other were $3.7 million in 1999 and $3.4 million in 1998, an 8.8% increase. As a percentage of meeting room rental and other revenues, these expenses were 14.4% in 1999 and 15.3% in 1998. General, administrative, sales and management service expenses increased to $104.9 million in 1999 from $95.5 million in 1998, an increase of $9.4 million, or 9.8%. Increases in these expenses were primarily attributable to the Company's adoption of a new accounting pronouncement in 1999 which requires cost of startup activities, including pre-opening expenses, to be expensed as incurred. Pre-opening expenses approximated $4.2 million in 1999. In addition, a large portion of expenses associated with New Hotel openings are fixed costs in nature. As a result, these expenses rise faster than revenues in the first one to two years of operation. As a percentage of total revenues, these expenses increased slightly to 29.4% in 1999, from 29.3% in 1998. Repairs and maintenance expenses increased to $15.1 million in 1999 from $13.4 million in 1998, an increase of $1.7 million, or 12.7%, and increased slightly as a percentage of revenues to 4.2% from 4.1% in 1998. Depreciation and amortization increased slightly by $0.1 million, or 0.2%, to $45.7 million in 1999 from $45.6 million in 1998. As a percentage of total revenues, these expenses decreased to 12.8% in 1999 from 14.0% in 1998. The dollar increase was a direct result of the increased level of capital expenditures for the newer hotels. Income from operations increased to $58.9 million in 1999 from $49.4 million in 1998, an increase of $9.5 million, or 19.2%. As a percentage of total revenues, income from operations was 16.6% in 1999 compared to 15.2% in 1998, due primarily to the reduction of depreciation and amortization as a percentage of revenue in 1999. Interest expense and amortization of deferred financing fees, net increased to $62.2 million in 1999 from $57.3 million in 1998, an increase of $4.9 million or 8.6%. The increase was attributable to debt associated with the financing of the New Hotels. Income (loss) before minority interest, provision for income taxes, extraordinary item and cumulative effect of change in accounting principle was a $1.0 million loss in 1999 compared to $0.3 million of income in 1998, a decrease of $1.3 million. The 1999 results include a $2.4 million gain on the sale of property and equipment in June 1999 of one Holiday Inn, and the 1998 results include an $8.2 million gain on sales in connection with the sale of six Holiday Inns in February of 1998 and one Holiday Inn in December of 1998. Net loss for 1999 was $1.0 million, compared to $0.7 million in 1998. In 1999, the Company recognized an extraordinary item of $0.1 million related to debt restructuring, compared to $0.6 million in 1998. The Company's 1999 results also reflect a $0.5 million cumulative effect of change in accounting principle to expense unamortized pre-opening costs. 21 1999 annual report 1998 FISCAL YEAR COMPARED TO 1997 FISCAL YEAR Total revenues increased to $326.1 million in 1998 from $302.3 million in 1997, an increase of $23.8 million, or 7.9%. Of the total revenues reported in 1998, 65.0% were revenues from rooms, 28.2% were revenues from food and beverage and 6.8% were revenues from meeting room rental and other, compared with 64.6%, 28.5%, and 6.9%, respectively, during 1997. Rooms revenues increased to $212.0 million in 1998 from $195.3 million in 1997, an increase of $16.7 million, or 8.6%, as a result of the operation of two hotels which opened in 1996 and six hotels opened in 1997, and the increase in average daily room rate (ADR). Average daily room rates (ADR) of Mature Hotels increased to $86.50 in 1998 from $79.80 in 1997. The occupancy in the Mature Hotels was a 0.3 percentage point increase to 64.1% in 1998, compared to 63.8% in 1997. The Mature Hotels' room revenue per available room (RevPAR) improved to $55.41 in 1998 from $50.90 in 1997, an increase of $4.51 or 8.9%. In 1998, the New Hotels included ten hotels, which generated a revenue per available room (RevPAR) of $62.54, up 3.9% from the 1997 revenue per available room (RevPAR) of $60.21, when eight New Hotels were opened. In general, management believes the New Hotels are more insulated from the effects of the new supply than are the Mature Hotels, since the New Hotels utilize franchise brands that are considered to be upscale in nature, and the New Hotels have higher-quality guest rooms and public spaces. Food and beverage revenues increased to $92.0 million in 1998 from $86.2 million in 1997, an increase of $5.8 million, or 6.7%. This increase was due to revenues associated with newly opened hotels. Meeting room rental and other revenues increased to $22.2 million in 1998 from $20.8 million in 1997, an increase of $1.4 million, or 6.7%. This increase was due to the addition of meeting space in the New Hotels. Direct operating costs and expenses for rooms increased to $54.6 million in 1998 from $50.3 million in 1997, an increase of $4.3 million, or 8.5%. As a percentage of rooms revenue, these expenses remained stable, at 25.8%. Direct operating costs and expenses for food and beverage increased to $64.2 million in 1998 from $62.4 million in 1997, an increase of $1.8 million, or 2.9%, but decreased as a percentage of food and beverage revenues, to 69.8% from 72.4% in 1997. The dollar increase was due to costs associated with the higher volume of sales. Direct operating costs and expenses for other remained stable in 1998 at $3.4 million, but decreased as a percentage of meeting room rental and other revenues to 15.3% from 16.3% in 1997. General administrative, sales and management service expenses increased to $95.5 million in 1998 from $85.8 million in 1997, an increase of $9.7 million, or 11.3%. Increases in these expenses are primarily attributable to expenses associated with the opening of New Hotels in 1997 and 1998. A large portion of expenses associated with New Hotel openings are fixed costs in nature. As a result, these expenses rise faster than revenues in the first one to two years of operation. As a percentage of total revenues, these expenses increased to 29.3% in 1998 from 28.4% in 1997. Repairs and maintenance expenses increased to $13.4 million in 1998 from $12.6 million in 1997, by $0.8 million or 6.3%, but decreased slightly as a percentage of total revenues, to 4.1% from 4.2% in 1997. Depreciation and amortization increased to $45.6 million in 1998 from $34.8 million in 1997, by $10.8 million, or 31.0%. As a percentage of total revenues, these expenses increased to 14.0% in 1998 from 11.5% in 1997. The increase was a direct result of the increased level of capital expenditures for the newly opened hotels. Income from operations decreased to $49.4 million 1998 from $53.1 million in 1997, a decrease of $3.7 million, or 7.0%. The decrease was due to higher costs, including depreciation expense related to the building of New Hotels. As a percentage of total revenues, income from operations was 15.2% in 1998 and 17.6% in 1997. Interest expense and amortization of deferred financing fees, net increased to $57.3 million in 1998 from $44.3 million in 1997, an increase of $13.0 million, or 29.3%. The increase was attributable to borrowing for New Hotel construction. Income before minority interest, provision for income taxes and extraordinary item decreased to $0.3 million in 1998 from $8.8 million in 1997, a decrease of $8.5 million, or 96.6%. The 1998 results include an $8.2 million gain on sales of property and equipment in connection with the sale of six Holiday Inns in February 1998 and one Holiday Inn in December 1998. 22 LIQUIDITY AND CAPITAL RESOURCES In general, the Company has financed its operations through internal cash flow, loans from financial institutions, the issuance of public debt and equity and the issuance of industrial revenue bonds. The Company's principal uses of cash are to pay operating expenses, to service debt and to fund capital expenditures, New Hotel development and permitted distributions to fund some of the taxes allocable to the partners. At December 31, 1999, the Company had $49.7 million of cash and equivalents and also had $5.0 million of marketable securities, compared to $46.2 million in cash and cash equivalents and $6.5 million of marketable securities at the end of 1998. Such amounts are available for completion of New Hotels and other working capital requirements of the Company. Net cash provided by operating activities decreased to $41.3 million at the end of 1999 from $43.5 million at the end of 1998, a decrease of $2.2 million, or 5.1%, primarily as the Company decreased its trade payables. The Company incurred net capital expenditures of $123.6 million and $131.2 million, respectively, for 1999 and 1998. Capital expenditures typically include capital improvements on existing hotel properties and expenditures for development of New Hotels. Capital expenditures in 1999 included $107.5 million for New Hotel development and $16.1 million for existing hotels. During 1998, capital expenditures for existing hotels and New Hotel development were $19.7 million and $111.5 million, respectively. During 2000, the Company expects capital expenditures to approximate $48.7 million, representing approximately $19.1 million for capital improvements on existing hotels and approximately $29.6 million for continued New Hotel development. At the end of 1999, total debt was $828.8 million compared with $759.7 million in 1998. The increase is attributable to the hotels opened during 1999 as well as two Scheduled Hotels under construction at the end of 1999. The current portion of long-term debt was $16.6 million at the end of 1999, compared with $42.3 million at the end of 1998. The Company estimates that building, pre-opening and other costs of the two Scheduled Hotels will require aggregate funding of approximately $24.4 million from the Company (net of $52.9 million included in construction in progress and other assets at year end). The Company has obtained loans and commitments of approximately $51.0 million (approximately $30.0 million of which had been drawn at year end) on the Scheduled Hotels and expects the remaining 2000 capital requirements to be funded by cash, cash flow from operations and refinancing of certain existing hotels. Based on current plans relating to the timing of New Hotel development and loan draw schedules, the Company anticipates that its capital resources will be adequate to satisfy its 2000 capital requirements for the currently planned projects and normal recurring capital improvement projects. Consistent with the authorization by the Board of Directors, the Company purchased 744,200 shares of Class A Common Stock during 1999, at an approximate average price of $4.03 per share. The Board of Directors authorized the Company to purchase an additional $3.0 million shares of Class A Common Stock during 2000. The Company did not distribute or accrue any amounts in 1999 to its partner for income taxes, but distributed or accrued $10.6 million in 1998. Distributions by the Company must be made in accordance with the provisions of the Indentures. Year 2000 The Company implemented a program over the past several years to define and minimize the risks related to transitioning to the year 2000 and beyond. The program developed appropriate action steps, while instituting a series of management processes to coordinate and manage the process. The process included corporate oversight and provided for consistent attention to progress made against planned activities with periodic assessments made by independent parties and reports to the Board of Directors. The Company's approach was to subdivide the program into five distinct areas: 1) Corporate Systems; 2) Hotel Systems; 3) Embedded Systems; 4) Time Keeping and Payroll Systems; and 5) Vendor Compliance. Each of these categories was broken into several subcategories (hardware and software systems, critical and noncritical systems, and compliance testing). The Company analyzed and monitored progress in each subcategory of each category. To date the program has been successful and the Company has transitioned all of its systems to the new millennium. No significant problems were identified in any of the five areas, and the Company believes the risk related to future exposure for Year 2000 issues is minimal. The cost associated with the Year 2000 initiative in 1999 was approximately $0.6 million, including the cost for scheduled hardware and software upgrades. 23 1999 annual report SEASONALITY Demand is affected by normally recurring seasonal patterns. For most of the JQH Hotels, demand is higher in the spring and summer months (March through October) than during the remainder of the year. Accordingly, the Company's operations are seasonal in nature, with lower revenue, operating profit and cash flow in the first and fourth quarters due to decreased travel during these winter months. INFLATION The rate of inflation as measured by changes in the average consumer price index has not had a material effect on the revenues or operating results of the Company during the three most recent fiscal years. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to changes in interest rates primarily as a result of its investing and financing activities. Investing activity includes operating cash accounts and investments, with an original maturity of three months or less, and certain balances of various money market and common bank accounts. The financing activities of the Company are comprised of long-term fixed and variable rate debt obligations utilized to fund business operations and maintain liquidity. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for the Company's long-term fixed and variable rate debt obligations as of December 31, 1999:
Expected Maturity Date (in millions) 2000 2001 2002 2003 2004 ThereAfter Total Fair Value(d) Long-Term Debt (a) $300 million 1st Mortgage notes $ ---- $ ---- $ ---- $ ---- $ 300 $ ---- $ 300 $ 313 Average interest rate (b) 8.9% 8.9% 8.9% 8.9% 8.9% ---- 8.9% $90 million 1st Mortgage notes $ ---- $ ---- $ ---- $ ---- $ ---- $ 90 $ 90 $ 94 Average interest rate (b) 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% Other fixed-rate debt obligations $ 6 $ 14 $ 31 $ 38 $ 6 $ 224 $ 319 $ 319 Average interest rate (b) 8.4% 8.2% 8.7% 8.8% 8.5% 8.6% 8.6% Other variable-rate debt obligations $ 10 $ 33 $ 1 $ 16 $ 29 $ 31 $ 120 $ 120 Average interest rate (c) 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8%
(a) Includes amounts reflected as long-term debt due within one year. (b) For the long-term fixed rate debt obligations, the weighted average interest rate is based on the stated rate of the debt that is maturing in the year reported. The weighted average interest rate excludes the effect of the amortization of deferred financing costs. (c) For the long-term variable rate debt obligations, the weighted average interest rate assumes no changes in interest rates and is based on the variable rate of the debt, as of December 31, 1999, that is maturing in the year reported. The weighted average interest rate excludes the effect of the amortization of deferred financing costs. (d) The fair values of long-term debt obligations approximate their respective historical carrying amounts, except with respect to the $300 million First Mortgage notes and the $90.0 million First Mortgage notes. The fair value of the First Mortgage note issues is estimated by obtaining quotes from brokers. 24 Report of Independent Public Accountants To the Shareholders of John Q. Hammons Hotels, Inc.: We have audited the accompanying consolidated balance sheets of John Q. Hammons Hotels, Inc. and Companies (Note 1) as of December 31, 1999, and January 1, 1999, and the related consolidated statements of operations, changes in minority interest and stockholdersO equity and cash flows for each of the three fiscal years ended December 31, 1999, January 1, 1999, and January 2, 1998. These financial statements are the responsibility of the Company' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of John Q. Hammons Hotels, Inc. and Companies (Note 1) as of December 31, 1999, and January 1, 1999, and the results of their operations and their cash flows for each of the three fiscal years ended December 31, 1999, January 1, 1999, and January 2, 1998, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, effective in the first quarter of fiscal 1999, the Company changed its method of accounting for costs of start-up activities, including pre-opening expenses. /s/ Arthur Andersen LLP Cincinnati, Ohio February 10, 2000 25 1999 annual report JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES Consolidated Balance Sheets (000s omitted, except share data)
ASSETS FISCAL YEAR END 1999 1998 CASH AND EQUIVALENTS (restricted cash of $1,323 and $860 in 1999 and 1998, respectively) (Note 2) $ 49,727 $ 46,233 MARKETABLE SECURITIES (Note 2) 4,982 6,533 RECEIVABLES Trade, less allowance for doubtful accounts of $226 and $206 in 1999, and 1998, respectively 11,677 8,852 Management fees (Note 3) 63 62 Construction reimbursements and other 2,370 5,269 INVENTORIES 1,349 1,205 PREPAID EXPENSES AND OTHER 1,699 1,089 ---------- --------- TOTAL CURRENT ASSETS 71,867 69,243 ---------- --------- PROPERTY AND EQUIPMENT, at cost (Notes 2, 5, and 6) Land and improvements 55,818 47,982 Buildings and improvements 683,462 605,586 Furniture, fixtures and equipment 270,146 239,648 Construction in progress 53,462 63,078 ---------- --------- 1,062,888 956,294 Less-accumulated depreciation and amortization (227,411) (194,860) ---------- --------- 835,477 761,434 DEFERRED FINANCING COSTS, FRANCHISE FEES AND OTHER, net (Notes 2, 4, and 5) 26,968 45,809 ---------- --------- Total Assets $ 934,312 $ 876,486 ========== =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 26 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED BALANCE SHEETS (000s omitted, except share data)
LIABILITIES AND EQUITY FISCAL YEAR END 1999 1998 LIABILITIES Current portion of long-term debt (Note 5) $ 16,569 $ 42,256 Accounts payable, including construction payables of approximately $350 and $2,203, respectively 11,877 13,141 Accrued expenses Payroll and related benefits 7,720 6,843 Sales and property taxes 10,368 9,558 Insurance (Notes 2 and 3) 7,576 10,061 Interest 12,873 12,540 Utilities, franchise fees, and other 6,546 5,568 Accrued distribution ---- 2,936 -------- -------- Total current liabilities 73,529 102,903 Long-term debt (Note 5) 812,274 717,460 Other obligations and deferred revenue (Note 2) 9,403 10,884 -------- -------- TOTAL LIABILITIES 895,206 831,247 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 6) MINORITY INTEREST OF HOLDERS OF LIMITED PARTNER UNITS (Note 1) 25,251 27,392 STOCKHOLDERS' EQUITY (Notes 1 and 6) Preferred stock, $.01 par value, 2,000,000 shares authorized, none outstanding ---- ---- Class A Common Stock, $.01 par value, 40,000,000 shares authorized at December 31, 1999, and January 1, 1999, and 6,042,000 shares issued at December 31, 1999, and January 1, 1999, and 5,308,120 and 6,042,000 shares outstanding at December 31, 1999, and January 1, 1999, respectively 60 60 Class B Common Stock, $.01 par value, 1,000,000 shares authorized, 294,100 shares issued and outstanding 3 3 Paid-in capital 96,373 96,373 Retained deficit, net (79,584) (78,589) Less: Treasury stock, at cost; 733,880 shares at December 31, 1999 (2,997) ---- -------- -------- TOTAL EQUITY 13,855 17,847 -------- -------- TOTAL LIABILITIES AND EQUITY $934,312 $876,486 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 27 1999 annual report JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS (000s omitted, except share data)
FISCAL YEAR ENDED 1999 1998 1997 ---------- ---------- ---------- REVENUES (Note 9) Rooms $ 229,807 $ 211,989 $ 195,296 Food and beverage 101,231 91,982 86,183 Meeting room rental and other 25,410 22,159 20,795 ---------- ---------- ---------- Total revenues 356,448 326,130 302,274 ---------- ---------- ---------- OPERATING EXPENSES (Notes 3, 4, and 6) Direct operating costs and expenses Rooms 59,507 54,600 50,265 Food and beverage 68,799 64,174 62,383 Other 3,667 3,389 3,385 General, administrative, sales, and management service expenses 104,876 95,500 85,766 Repairs and maintenance 15,059 13,438 12,578 Depreciation and amortization (Note 9) 45,669 45,580 34,781 ---------- ---------- ---------- Total operating expenses 297,577 276,681 249,158 ---------- ---------- ---------- INCOME FROM OPERATIONS (Note 9) 58,871 49,449 53,116 OTHER (INCOME) EXPENSE Interest expense and amortization of deferred financing fees, net of $3,161, $3,794, and $1,279 of interest income in 1999, 1998, and 1997, respectively (Note 2(e)) 62,209 57,286 44,325 Gain on sales of property and equipment (Note 9) (2,365) (8,175) ---- ---------- ---------- ---------- INCOME (LOSS) BEFORE MINORITY INTEREST, PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (973) 338 8,791 Minority interest in (earnings) losses of partnership (Note 1) 698 (242) (6,302) ---------- ---------- ---------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (275) 96 2,489 Provision for income taxes (Note 2(j)) (150) (120) (75) ---------- ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (425) (24) 2,414 Extraordinary item; cost of early extinguishment of debt, net of applicable tax benefit (Note 5) (55) (637) ---- ---------- ---------- ---------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (480) (661) 2,414 Cumulative effect of change in accounting principle, net of applicable tax benefit (Note 2) (515) ---- ---- ---------- ---------- ---------- NET INCOME (LOSS) (Note 1) $ (995) $ (661) $ 2,414 ========== ========== ========== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (NOTE 2(n)) Earnings (loss) before extraordinary item and cumulative effect of change in accounting principle $ (.07) $ ---- $ .38 Extraordinary item (.01) (.10) ---- Cumulative effect of change in accounting principle (.08) ---- ---- ---------- ---------- ---------- Earnings (loss) allocable to the Company $ (.16) $ (.10) $ .38 ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING 6,067,659 6,336,100 6,336,100 ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 28 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED STATEMENTS OF CHANGES IN MINORITY INTEREST AND STOCKHOLDERS' EQUITY (1) (000s omitted)
MINORITY INTEREST STOCKHOLDERS' EQUITY CLASS A CLASS B COMPANY RETAINED COMMON COMMON PAID-IN DEFICIT AFTER TREASURY STOCK STOCK CAPITAL REORGANIZATION STOCK TOTAL BALANCE, Year end 1996 $ 33,662 $ 60 $ 3 $ 96,373 $(80,342) $ -- $ 16,094 Distributions (Note 1(b)) (565) -- -- -- -- -- -- Net income allocable to the Company -- -- -- -- 2,414 -- 2,414 Minority interest in earnings of the partnership 6,302 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- BALANCE, Year end 1997 39,399 60 3 96,373 (77,928) -- 18,508 Distributions (Note 1(b)) (10,637) -- -- -- -- -- -- Net loss allocable to the Company -- -- -- -- (661) -- (661) Minority interest in losses of the partnership after extraordinary item of $1,612 (1,370) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- BALANCE, Year end 1998 27,392 60 3 96,373 (78,589) -- 17,847 Net loss allocable to the Company -- -- -- -- (995) -- (995) Minority interest in losses of partnership, after extraordinary item and cumulative effect of change in accounting principle of $1,443 (2,141) -- -- -- -- -- -- Treasury stock purchased -- -- -- -- -- (2,997) (2,997) -------- -------- -------- -------- -------- -------- -------- BALANCE, Year end 1999 $ 25,251 $ 60 $ 3 $ 96,373 $(79,584) $ (2,997) $ 13,855 ======== ======== ======== ======== ======== ======== ========
(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial Accounting Standards, No. 130 Reporting Comprehensive Income. ------------------------------ The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 29 1999 annual report JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000s omitted)
FISCAL YEAR ENDED 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (995) $ (661) $ 2,414 Adjustments to reconcile net income (loss) to cash provided by operating activities Minority interest in earnings (losses) of partnership (698) 242 6,302 Depreciation, amortization, and loan cost amortization 47,655 48,448 37,662 Extraordinary item (Note 5) 55 637 -- Cumulative effect of change in accounting principle (Note 2) 515 -- -- Gain on sales of property and equipment (Note 9) (2,365) (8,175) -- --------- --------- --------- 44,167 40,491 46,378 Changes in certain assets and liabilities Receivables 73 (2,742) (4,826) Inventories (144) (112) (187) Prepaid expenses and other (610) 297 542 Accounts payable (1,264) 1,909 (18,745) Accrued expenses 513 668 3,730 Other obligations and deferred revenue (1,481) 2,983 877 --------- --------- --------- Net cash provided by operating activities 41,254 43,494 27,769 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (123,620) (131,183) (179,385) Proceeds from sales of property and equipment (Note 9) 6,500 43,577 -- Franchise fees and other 15,353 (11,528) (3,499) (Purchase) sale of marketable securities, net 1,551 6,209 (10,387) --------- --------- --------- Net cash used in investing activities (100,216) (92,925) (193,271) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Loan financing fees (738) (2,521) (3,069) Proceeds from borrowings 104,477 260,771 186,684 Repayments of debt (35,350) (196,846) (22,036) Distributions (2,936) (7,701) (565) Purchase of treasury stock (2,997) -- -- --------- --------- --------- Net cash provided by financing activities 62,456 53,703 161,014 --------- --------- --------- Increase (decrease) in cash and equivalents 3,494 4,272 (4,488) CASH AND EQUIVALENTS, beginning of period 46,233 41,961 46,449 --------- --------- --------- CASH AND EQUIVALENTS, end of period $ 49,727 $ 46,233 $ 41,961 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized $ 63,312 $ 58,733 $ 43,399 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES Note receivable from sale of property and equipment (Note 9) $ -- $ 11,900 $ -- ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 30 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted, except share data) 1. Basis of Presentation (a) ENTITY MATTERS--The accompanying consolidated financial statements include the accounts of John Q. Hammons Hotels, Inc. and John Q. Hammons Hotels, L.P. and subsidiaries (collectively the Company or, as the context may require, John Q. Hammons Hotels, Inc. only). As of fiscal year end 1999, 1998, and 1997, the Company had 45, 42, and 45, hotels, respectively, in operation of which 29 in 1999, 28 in 1998, and 35 in 1997 operated under the Holiday Inn and Embassy Suites trade names. The Company's hotels are located in 19 states throughout the United States. The Company was formed in September 1994 and had no operations or assets prior to its initial public offering of 6,042,000 Class A Common Shares at $16.50 per share on November 23, 1994. Immediately prior to the initial public offering, Mr. John Q. Hammons (JQH) contributed approximately $5 million in cash to the Company in exchange for 294,100 shares of Class B Common Stock (which represents approximately 72% of the voting control of the Company). The Company contributed the approximate $96 million of net proceeds from the Class A and Class B Common Stock offerings to John Q. Hammons Hotels, L.P. (JQHLP) in exchange for an approximate 28% general partnership interest. As the sole general partner of JQHLP, the Company exercises control over all decisions as set forth in the partnership agreement. The net income (loss) allocable to the Company reported in the accompanying consolidated statements of operations include the Company's approximate 28% share of all JQHLP earnings (losses). The approximate 72% minority interest attributable to the portion of the partnership not owned by the Company has been reflected as minority interest in the accompanying consolidated financial statements. All significant balances and transactions between the entities and properties have been eliminated. (b) PARTNERSHIP AND OTHER MATTERS--A summary of selected provisions of the partnership agreement as well as certain other matters are summarized as follows: Allocation of Income, Losses and Distributions: ---------------------------------------------- Pretax income, losses and distributions of JQHLP will generally be allocated prorata between the Company, as general partner, and the limited partner interest beneficially owned by JQH based on their respective approximate 28% and 72% ownership interests in JQHLP. However, among other things, to the extent the limited partners were not otherwise committed to provide further financial support and pretax losses reported for financial reporting purposes were deemed to be of a continuing nature, the balance of the pretax losses would be allocated only to the Company, with any subsequent pretax income also to be allocated only to the Company until such losses had been offset. In addition, with respect to distributions, in the event JQHLP has taxable income, distributions are to be made in an aggregate amount equal to the amount JQHLP would have paid for income taxes had it been a C Corporation during the applicable period. Aggregate tax distributions will first be allocated to the Company, if applicable, with the remainder allocated to the limited partners. There were no distributions for taxes for the fiscal year ended 1999. Distributions for taxes approximated $10,637 and $565 for the fiscal years ended 1998 and 1997, respectively. 31 1999 annual report Additional Capital Contributions: -------------------------------- In the event proceeds from the sale of the original 20 hotel properties (or applicable replacement collateral) which secure the $300 million First Mortgage notes (1994 notes) (Note 5) are insufficient to satisfy amounts due on the 1994 notes, JQH and Hammons, Inc. (as general partners at the time the 1994 notes were secured) are severally obligated to contribute up to $135 million and $15 million, respectively, to satisfy amounts due, if any. In the event proceeds from the sale of the original eight hotel properties (or applicable replacement collateral) which secure the $90 million First Mortgage notes (1995 notes) (Note 5) are insufficient to satisfy amounts due on the 1995 notes, JQH is obligated to contribute up to $45 million to satisfy amounts due, if any. In addition, with respect to the original eleven hotel properties contributed by JQH concurrent with the public equity offering, JQH is obligated to contribute up to $50 million in the event proceeds from the sale of these hotel properties (or applicable replacement collateral) are insufficient to satisfy amounts due on the then outstanding mortgage indebtedness related to these properties. Redemption of Limited Partner Interests: --------------------------------------- Subject to certain limitations, the limited partners of JQHLP have the right to require redemption of their limited partner interests at any time subsequent to November, 1995. Upon redemption, the limited partners receive, at the sole discretion of the Company, one share of its Class A Common Stock for each limited partner unit tendered or the then cash equivalent thereof. Additional General Partner Interest: ----------------------------------- Upon the issuance by the Company of additional shares of its common stock, including shares issued upon the exercise of its stock options (Note 8), the Company will be required to contribute to JQHLP the net proceeds received and JQHLP will be required to issue additional general partner units to the Company in an equivalent number to the additional shares of common stock issued. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) CASH AND EQUIVALENTS--Cash and equivalents include operating cash accounts and investments, with an original maturity of three months or less, and certain balances of various money market and common bank accounts. Restricted cash consists of certain funds maintained in escrow for property taxes and certain other obligations. (b) MARKETABLE SECURITIES--Marketable securities consist of available-for- sale commercial paper and government agency obligations which mature or will be available for use in operations in 2000. These securities are valued at current market value, which approximates cost. Realized gains and losses in 1999 and 1998, determined using the specific identification method, were nominal. (c) INVENTORIES--Inventories consist of food and beverage items. These items are stated at the lower of cost, as determined by the first-in, first-out valuation method, or market. (d) DEFERRED FINANCING COSTS, FRANCHISE FEES AND OTHER--Franchise fees paid to the respective franchisors of the hotel properties are amortized on a straight-line basis over 10 to 20 years which approximates the terms of the respective agreements. Costs of obtaining financing are capitalized and amortized over the respective terms of the debt. 32 The components of deferred financing costs, franchise fees, and other are summarized as follows:
FISCAL YEAR END 1999 1998 Deferred financing costs $ 23,647 $ 23,534 Franchise fee 5,142 5,254 Less-accumulated amortization (12,874) (10,851) -------- -------- 15,915 17,937 Note receivable, related to sale of hotel and a component of replacement collateral for 1995 first mortgage notes (Note 9) -- 11,900 Restricted cash deposits, interest bearing, related to sales of hotels, and a component of replacement collateral for 1994 and 1995 First Mortgage notes (Note 9) 102 6,266 Deposits 10,738 7,017 Pre-opening expenses (Note 2(q)) -- 1,819 Other, net 213 870 -------- -------- $ 26,968 $ 45,809 ======== ========
In October 1997, the Company entered into an irrevocable stand-by letter of credit agreement with a bank for approximately $5.6 million. The letter of credit replaced the restricted cash deposit which was required by and maintained with an insurance carrier. In November 1999, the letter of credit amount was amended to approximately $1.9 million. The letter of credit expires in October 2000. (e) PROPERTY AND EQUIPMENT--Property and equipment are stated at cost (including interest, real estate taxes, and certain other costs incurred during development and construction) less accumulated depreciation and amortization. Buildings and improvements are depreciated using the straight-line method while all other property is depreciated using both straight-line and accelerated methods. The estimated useful lives of the assets are summarized as follows: LIVES IN YEARS Land improvements 5-25 New buildings and improvements 5-40 Purchased buildings 25 Furniture, fixtures, and equipment 3-10 Construction in progress includes development and construction costs of certain hotel developments. Costs associated with hotel development construction in progress approximated $53 million in 1999, and $59 million in 1998, with the remainder representing refurbishments of operating hotels. The Company periodically reviews the carrying value of these assets and other long-lived assets and impairments are recognized when the expected undiscounted future cash flows are less than the carrying amount of the asset. Based on its most recent analysis, the Company believes no impairments exist at December 31, 1999. Interest costs, construction overhead and certain other carrying costs are capitalized during the period hotel properties are under construction. Interest costs capitalized were $6,770, $6,163, and $10,259 for the fiscal years ended 1999, 1998, and 1997, respectively. Construction in progress is recorded at the lower of cost or market. Costs incurred for prospective hotel projects ultimately abandoned are charged to operations in the period such plans are finalized. Costs of significant improvements are capitalized, while costs of normal recurring repairs and maintenance are charged to expense as incurred. The accompanying 1999 consolidated financial statements include the land costs for 33 of the operating hotel properties. Land for 10 of the remaining 12 operating hotel properties is leased by the Company from unrelated parties over long-term leases. Land for the remaining two operating hotel properties is leased by the Company from a related party over long-term leases. Rent expense for all land leases was $1,109, $1,008, and $464 for the fiscal years ended 1999, 1998, and 1997, respectively. 33 1999 annual report (f) PAR OPERATING EQUIPMENT--A hotel's initial expenditures for the purchase of china, glassware, silverware, linens, and uniforms are capitalized into furniture, fixtures, and equipment and amortized on a straight-line basis over a three to five year life. Costs for replacement of these items are charged to operations in the period the items are placed in service. (g) ADVERTISING--The Company expenses the cost of advertising associated with operating hotels as incurred. Advertising expense for 1999, 1998, and 1997 was approximately $26,834, $23,571, and $21,405, respectively. (h) PENSIONS AND OTHER BENEFITS--The Company contractually provides retirement benefits for certain union employees at two of its hotel properties under a union-sponsored defined benefit plan and a defined contribution plan. Contributions to these plans, based upon the provisions of the respective union contracts, approximated $77, $70, and $66 for the fiscal years ended 1999, 1998, and 1997, respectively. Effective January 1996, the Company implemented an employee savings plan (a 401(k) plan). The Company matches a percentage of an employee's contribution. The Company's matching contributions are funded currently. The cost of the matching program and administrative costs charged to income were approximately $258, $591, and $381 in 1999, 1998, and 1997, respectively. The Company does not offer any other post-employment or post-retirement benefits to its employees. (i) SELF-INSURANCE--The Company became fully insured for liability and workers' compensation effective November 1999 and October 1998, respectively. The Company became self-insured for medical coverage effective January 1999. Estimated costs related to these self- insurance programs are accrued based on known claims and projected settlements of unasserted claims. Subsequent changes in, among others, assumed claims, claim costs, claim frequency, as well as changes in actual experience, could cause these estimates to change. (j) INCOME TAXES--The Company's provision for income taxes for fiscal 1999, 1998, and 1997 is summarized as follows: 1999 1998 1997 Currently payable $ 150 $ 120 $ 75 Deferred -- -- -- ----- ----- ----- Provision for income taxes $ 150 $ 120 $ 75 ===== ===== ===== A reconciliation between the statutory federal income tax rate and the effective tax rate is summarized as follows:
1999 1998 1997 AMOUNT RATE AMOUNT RATE AMOUNT RATE Provision (benefit) for income taxes at the federal statutory rate $ (94) (34)% $ 33 34% $ 846 34% Tax provision (benefit) allocable to general partner 94 34 (33) (34) (846) (34) Provision for state franchise taxes 150 55 120 125 75 3 ------ ------ ------ ------ ------ ------ Provision for income taxes $ 150 55% $ 120 125% $ 75 3% ====== ====== ====== ====== ====== ======
34 At December 31, 1999, and January 1, 1999, the net deferred tax liability consisted of the following:
DEFERRED TAX ASSETS: 1999 1998 Estimated allocated tax basis in excess of the Company's proportionate share of the book value of JQHLP's net assets $ 5,150 $ 6,100 Deferred tax liabilities (1) (1) ------- ------- 5,149 6,099 Valuation allowance 5,150 (6,100) ------- ------- Net deferred tax liability $ (1) $ (1) ======= =======
The realization of the estimated deferred tax asset resulting from estimated tax basis in excess of the Company's proportionate share of the book value of JQHLP's net assets is dependent upon, among others, prospective taxable income allocated to the Company, disposition of the hotel properties subsequent to the end of a property's respective depreciable tax life, and the timing of subsequent conversions, if any, of limited partnership units in JQHLP into common stock of the Company. Accordingly, a valuation allowance has been recorded in an amount equal to the estimated deferred tax asset associated with the differences between the Company's basis for financial reporting and tax purposes. Adjustments to the valuation allowance, if any, will be recorded in the periods in which it is determined the asset is realizable. (k) REVENUE RECOGNITION--The Company recognizes revenues from its rooms, catering,and restaurant facilities as earned on the close of business each day. (l) USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) FISCAL YEAR--The Company's fiscal year ends on the Friday nearest December 31 which includes 52 weeks in 1999, 1998, and 1997. The periods ended in the accompanying consolidated financial statements are summarized as follows: YEAR FISCAL YEAR END 1999 December 31, 1999 1998 January 1, 1999 1997 January 2, 1998 (n) EARNINGS (LOSS) PER SHARE--In 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). In accordance with SFAS 128, basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share are computed similar to basic except the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. Options to purchase shares of common stock were outstanding during fiscal years 1999, 1998, and 1997 (Note 8). The options were not included in the computation of diluted earnings per share since the options' exercise prices were greater than the average market price of the common shares and the options would be antidilutive. Since there are no dilutive securities, basic and diluted earnings (loss) per share are identical, thus a reconciliation of the numerator and denominator is not necessary. (o) SEGMENTS--The Company operates in one reportable segment, hospitality services. (p) RECLASSIFICATIONS--Certain reclassifications have been reflected in 1997 to conform with the current period presentation. 35 1999 annual report (q) ACCOUNTING PRONOUNCEMENTS--In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5), which requires costs of start-up activities, including pre-opening expenses, to be expensed as incurred. Prior to January 1, 1999, the Company's practice was to defer these expenses until a hotel had commenced operations, at which time the costs, other than advertising costs which were expensed upon opening, were amortized over a one year period. The Company adopted the provisions of this statement in the first quarter of fiscal 1999 and, as a result, cumulative unamortized pre-opening costs of $0.5 million were charged to expenses net of $1.3 million of minority interest. Pre-opening expenses in 1999 approximated $4,161 and are included in general, administrative, sales and management service expenses in the accompanying consolidated statements of operations. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. This statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS 133" (SFAS 137). SFAS 137 amends SFAS 133's effective date. SFAS 137 states the statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Upon adoption of this statement, the Company anticipates no impact on its reported consolidated financial position, results of operations, cash flows or related disclosures. 3. RELATED PARTY TRANSACTIONS (a) HOTEL MANAGEMENT FEES--In addition to managing the hotel properties included in the accompanying consolidated financial statements, the Company provides similar services for other hotel properties owned or controlled by JQH which included five properties at December 31, 1999. A management fee of approximately 3% to 5% of gross revenues (as defined) is paid to the Company by these hotels which aggregated approximately $844, $715, and $643 for the fiscal years ended 1999, 1998, and 1997, respectively. (b) ACCOUNTING AND ADMINISTRATIVE SERVICES--The hotels have contracted for accounting and other administrative services with Winegardner & Hammons, Inc. (WHI), a company related by common ownership. The accounting and administrative charges expensed by the hotel properties, included in administrative expenses, were approximately $1,440, $1,388, and $1,411 for the fiscal years ended 1999, 1998, and 1997, respectively. In 1999, the Company negotiated a new contract with WHI to continue to provide accounting and administrative services through June 2002. Charges for these services provided by WHI will approximate $35 per year for each hotel property for the duration of the agreement. (c) INSURANCE COVERAGE--To supplement the Company's self-insurance programs, umbrella, property, auto, commercial liability, workers' compensation and, commencing in 1999, medical insurance is provided to the hotel properties under a blanket commercial policy purchased by the Company or WHI, covering hotel properties owned by JQHLP, JQH or managed by WHI. Generally, premiums allocated to each hotel property are based upon factors similar to those used by the insurance provider to compute the aggregate group policy premium. Insurance expense for the properties included in operating expenses was approximately $1,088, $2,158, and $6,196 for the fiscal years ended 1999, 1998, and 1997, respectively. During fiscal 1999 and 1998, the Company realized continued favorable trends in insurance expense as a result of claim experience and rate improvements and favorable buyouts of several prior self-insured years. (d) ALLOCATION OF COMMON COSTS--The Company and its general partner incur certain hotel management expenses incidental to the operations of all hotels beneficially owned or controlled by JQH. These costs principally include the compensation and related benefits of certain senior hotel executives. Commencing in May of 1993, these costs were allocated by the Company to hotels not included in the accompanying consolidated statements, based on the respective number of rooms of all hotels owned or controlled by JQH. These costs approximated $132, $145, and $131 for the fiscal years ended 1999, 1998, and 1997, respectively. Management considers these allocations to be reasonable. 36 (e) TRANSACTIONS WITH STOCKHOLDERS AND DIRECTORS--Advances to JQH as of December 31, 1999 approximated $366. No amounts were due from JQH as of January 1, 1999. In fiscal 1998, JQH assumed approximately $0.3 million in costs incurred associated with new developments. No such costs were assumed by JQH in fiscal 1999. During 1996, the Company entered into an agreement with a director relating to certain financial advisory services. The Company recognized approximately $17 and $180 in expense for the fiscal years ended 1998 and 1997, respectively, under this agreement. No such services were rendered in fiscal 1999. (f) SUMMARY OF RELATED PARTY EXPENSES--The following summarizes expenses reported as a result of activities with related parties:
FISCAL YEAR ENDING 1999 1998 1997 Expenses included within general, administrative, sales and management service expenses: Accounting and administrative $1,440 $1,388 $1,411 Rental expenses (Note 6) 787 800 465 Financial advisory services from a director -- 17 180 ------ ------ ------ $2,227 $2,205 $2,056 ====== ====== ====== Allocated insurance expense from the pooled coverage included within various operating categories: Insurance other than medical $1,088 $2,158 $6,196 ====== ====== ====== Medical, self-insured, commencing in 1999 $5,368 $ -- $ -- ====== ====== ======
4. FRANCHISE AGREEMENTS As of year end 1999 and 1998, 40 of the 45 and 36 of the 42, respectively, operating hotel properties included in the accompanying consolidated balance sheets have franchise agreements with national hotel chains which require each hotel to remit to the franchisor monthly fees equal to approximately 3% to 5% of gross room revenues, as defined. Franchise fees expensed under these contracts were $8,478, $8,110, and $7,165 for the fiscal years ended 1999, 1998, and 1997, respectively. As part of the franchise agreement, each hotel also pays additional advertising, reservation and maintenance fees to the franchisor which range from 1% to 3.5% of gross room revenues, as defined. The amount of expense related to these fees included in the consolidated statements of operations as a component of sales expense was approximately $7,720, $7,083, and $6,497 for the fiscal years ended 1999, 1998, and 1997, respectively. 37 1999 annual report 5. LONG-TERM DEBT The components of long-term debt are summarized as follows:
FISCAL YEAR END 1999 1998 1994 First Mortgage notes, interest at 8.875%, interest only payable February 15 and August 15, principal due February 15, 2004, secured by a First Mortgage lien on the original 20 hotel properties (or applicable replacement collateral) and additional capital contributions of up to $150 million by JQH and an entity under his control. (Note 1(b)) $300,000 $300,000 1995 First Mortgage notes, interest at 9.75%, interest only payable April 1 and October 1, principal due October 1, 2005, secured by a First Mortgage lien on the original six hotel properties (or applicable replacement collateral), a Second Mortgage lien on the original two hotel properties and additional capital contributions of up to $45 million by JQH. (Note 1(b)) 90,000 90,000 Development bonds, interest rates ranging from variable interest rate approximates 85% of the bond equivalent yield of 13 week U.S. Treasury bills (not to exceed 12%), to fixed interest rates at 7.125%, payable in scheduled installments through August 2015, certain of the obligations subject to optional prepayments by the bondholders, secured by certain hotel facilities, fixtures and an assignment of rents. 13,959 14,443 Mortgage notes payable to banks, insurance companies and a state retirement plan, variable interest rates at prime to LIBOR plus 3.25% with certain instruments subject to a ceiling rate and a floor rate, fixed rates ranging from 7.57% to 9.5%, payable in scheduled installments through April 2027, secured by certain hotel facilities, fixtures, an assignment of rents, and certain other real property controlled by JQH, with certain instruments subject to cross-collateralization provisions and, with respect to approximately $394,007 of mortgage notes, a personal guarantee of JQH. 416,130 344,369 Other notes payable, variable interest rate at prime plus 1% and fixed rates ranging from 6.8% to 8.1%, payable in scheduled installments through March 2003, secured by certain hotel improvements, furniture, fixtures and related equipment and, with respect to approximately $750 of notes, a personal guarantee of JQH. 8,754 10,904 -------- -------- 828,843 759,716 Less-current portion (16,569) (42,256) -------- -------- $812,274 $717,460 ======== ========
The indenture agreements relating to the 1994 and 1995 notes include certain covenants which, among others, limit the ability of JQHLP and its restricted subsidiaries (as defined) to make distributions, incur debt and issue preferred equity interests, engage in certain transactions with its partners, stockholders or affiliates, incur certain liens, engage in mergers or consolidations and achieve certain interest coverage ratios, as defined. In addition, certain of the other credit agreements include subjective acceleration clauses and limit, among others, the incurrence of certain liens and additional indebtedness. The 1994 and 1995 notes and certain other obligations include scheduled prepayment penalties in the event the obligations are paid prior to their scheduled maturity. The Company paid off or refinanced approximately $28,000 and $133,000 of long- term debt in 1999 and 1998, respectively. In connection with these transactions, the Company incurred approximately $200 and $2,200, respectively, in charges related to the early extinguishment of debt of which $55 and $637, respectively, is allocable to the Company with the remaining charges applied to the minority interest. The Company's debt extinguishment charges have been reflected in the accompanying 1999 and 1998 consolidated statements of operations as an extraordinary item. 38 Scheduled maturities of long-term debt are summarized as follows: FISCAL YEAR ENDING YEAR END 1999 2000 $ 16,569 2001 46,878 2002 31,559 2003 53,810 2004 335,032 Thereafter 344,995 -------- $828,843 ======== 6. COMMITMENTS AND CONTINGENCIES (a) OPERATING LEASES--The hotel properties lease certain equipment and land from unrelated parties under various lease arrangements. In addition, the Company leases certain parking spaces at one hotel for the use of its patrons and is billed by the lessor based on actual usage. Rent expense for these leases was approximately $3,508, $2,715, and $1,819 for the fiscal years ended 1999, 1998, and 1997, respectively, which has been included in general, administrative, sales and management service expenses. Included in the accompanying consolidated financial statements are the operating results of trade centers located in Joplin, Missouri, and Portland, Oregon. Both of the trade centers are owned by JQH. The lease agreement for the Joplin trade center stipulates nominal rentals for each of the fiscal years ended 1999, 1998, and 1997, and for each ensuing year through 2014. The lease agreement for the Portland facility extends through 2004 and requires minimum annual rents of $300 to JQH. In addition, the Company leases office space in Springfield, Missouri, from a partnership (of which JQH is a partner) for annual payments of approximately $234 through December 2001. The Company has also entered into land leases with JQH for two operating hotel properties. Subject to the Company exercising purchase options provided under these agreements, these leases extend through 2036 and 2045, respectively, and require aggregate minimum annual payments of approximately $270. Rent expense for these related party leases was approximately $787, $800, and $465 for the fiscal years ended 1999, 1998, and 1997, respectively. The minimum annual rental commitments for these noncancelable operating leases at December 31, 1999, are as follows: FISCAL YEAR ENDING JQH OTHER TOTAL 2000 $ 570 $ 1,837 $ 2,407 2001 570 1,387 1,957 2002 570 882 1,452 2003 570 820 1,390 2004 570 803 1,373 Thereafter 10,235 52,070 62,305 ------- ------- ------- $13,085 $57,799 $70,884 ======= ======= ======= (b) Hotel Development--In 2000, the Company plans to complete construction and open two New Hotels. The total estimated aggregate development and construction costs for these hotels are expected to exceed $70 million. (c) STOCK REPURCHASE--On December 1, 1998, the Board of Directors authorized the Company to repurchase up to $3,000 of the outstanding stock at market prices during fiscal 1999. On November 30, 1999, the Board of Directors authorized the Company to repurchase up to an additional $3,000 of the outstanding stock at market prices during fiscal 2000. At December 31, 1999, the Company has repurchased $2,997 of the total authorized to be repurchased. (d) LEGAL MATTERS--The Company is party to various legal proceedings arising from its consolidated operations. Management of the Company believes that the outcome of these proceedings, individually and in the aggregate, will have no material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 39 1999 annual report 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of marketable securities and long-term debt approximate their respective historical carrying amounts except with respect to the 1994 and 1995 First Mortgage notes for which fair market value was approximately $408 million at 1999 and 1998. The fair value of the First Mortgage notes issued is estimated by obtaining quotes from brokers. 8. STOCK OPTIONS Concurrent with the sale of equity securities in November 1994, the Company adopted a stock option plan for its employees. The plan authorizes the issuance of up to 2,416,800 shares of Class A Common Stock. Options granted under the plan in 1994 were at fair market value as of the date of the grant (approximately $16.50 per share). In June 1998, the options outstanding under the initial stock option grant were cancelled. Concurrent with this cancellation, new options were granted under the provisions of the 1994 stock option plan at fair market value as of the date of the grant ($7.38 per share), and are generally exercisable over periods not exceeding 10 years. (See Note 1(b) Additional General Partner Interest.) A summary of the changes in options outstanding during 1999 and 1998 is as follows: NUMBER OF SHARES OPTION PRICE PER SHARE Outstanding at January 2, 1998 750,000 $ 16.50 Granted 829,100 7.38 Exercised -- -- Cancelled or expired (839,600) 7.38-16.50 ----------- ----------- Outstanding at January 1, 1999 739,500 7.38 Granted -- -- Exercised -- -- Expired (118,000) 7.38 ----------- ----------- Outstanding at December 31, 1999 621,500 $ 7.38 =========== =========== Exercisable at December 31, 1999 155,375 $ 7.38 =========== =========== The Company accounts for this option plan under APB Opinion No. 25, under which no compensation cost has been recognized. In accordance with Financial Accounting Standards Board Statement No. 123, (SFAS No. 123) "Accounting for Stock-Based Compensation," the Company is required, at a minimum, to report pro forma disclosures of expense for stock-based awards based on their fair values. Had compensation cost been determined consistent with SFAS No. 123, the Company's net loss and diluted loss per share for the years ended December 31, 1999, and January 1, 1999, would have been as follows: 1999 1998 NET LOSS As reported $ (995) $ (661) Pro forma (1,153) (771) DILUTED LOSS PER SHARE As reported $ (.16) $ (.10) Pro forma (.19) (.12) Given that disclosures under SFAS No. 123 are not applicable to options granted prior to January 1, 1995, and given the Company granted no options in 1997, there is no additional pro forma compensation expense to be disclosed for 1997. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998: Dividend yield 0% Expected volatility 33.5% Risk-free interest rate 5.67% Expected lives 7.5 years At December 31, 1999, the options granted in 1998 under the 1994 plan to employees have an exercise price of $7.38, a fair value of $3.59 per option and remaining contractual lives of 9 years. 40 9. SALES OF PROPERTY AND EQUIPMENT On February 6, 1998, the Company completed the sale of six hotels to an unrelated party for $39.4 million, resulting in a gain of approximately $0.2 million. The net book value of the hotels' property and equipment at the time of the sale was approximately $38.6 million. Certain of these hotels served as collateral under the 1994 and 1995 First Mortgage notes (Note 5). Under the terms of these indentures, the Company provided replacement collateral in accordance with the indenture provisions. On December 31, 1998, the Company completed the sale of a hotel property to an unrelated party for $16.1 million, resulting in a gain of approximately $8 million. The net book value of the hotel's property and equipment at the time of the sale was approximately $8 million. In addition to the cash received upon closing, the sales price included a note receivable for $11.9 million. Proceeds for the balance of the note receivable were received during fiscal 1999. This hotel served as collateral under the 1995 First Mortgage notes (Note 5). Under the terms of this indenture, the Company provided replacement collateral in accordance with the indenture provisions. On June 16, 1999, the Company completed the sale of a hotel to an unrelated party for $6.5 million, resulting in a gain of approximately $2.4 million. The net book value of the hotel's property and equipment at the time of the sale was approximately $3.6 million. The hotel served as collateral under the 1994 First Mortgage notes (Note 5). Under the terms of this indenture, the Company provided replacement collateral in accordance with the indenture provisions. Summary unaudited operating results for the eight hotels sold for each of the three years ended 1999, 1998, and 1997, as applicable, are as follows:
FISCAL YEAR ENDING 1999 1998 1997 Revenues $1,003 $12,122 $38,064 ====== ======= ======= Income (loss) from operations, including depreciation and amortization of $210, $1,315, and $3,578, respectively $ (22) $ 439 $ 2,264 ====== ======= =======
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS FIRST SECOND THIRD FOURTH 1999 Total revenues $ 83,595 $ 90,452 $ 89,206 $ 93,195 Income from operations 13,694 15,770 12,814 16,593 Net income (loss) allocable to the Company (938) 982 (1,047) 8 Basic and diluted earnings (loss) per share (0.15) 0.16 (0.17) -- Weighted average shares 6,228,747 6,103,591 6,029,958 5,834,660 1998 Total revenues $ 78,952 $ 81,811 $ 82,663 $ 82,704 Income from operations 11,132 12,788 12,842 12,687 Net income (loss) allocable to the Company (969) (367) (578) 1,253 Basic and diluted earnings (loss) per share (0.15) (0.06) (0.09) 0.20 Weighted average shares 6,336,100 6,336,100 6,336,100 6,336,100
41 1999 annual report John Q. Hammons Hotels, Inc. Portfolio EMBASSY SUITES SHERATON CORPORATE ADDRESS Sioux Falls, South Dakota* John Q. Hammons Hotels, Inc. Charleston, West Virginia 300 John Q. Hammons Parkway Columbia, South Carolina RADISSON Suite 900 Dallas (D/FW North), Texas Coral Springs, Florida Springfield, MO 65806 Des Moines, Iowa Davenport, Iowa Telephone: (417) 864-4300 Greensboro, North Carolina Houston (Hobby Airport), Texas Web site: www.jqhhotels.com Greenville, South Carolina Kansas City (International Airport), Missouri MARRIOTT INDEPENDENT AUDITORS Lincoln, Nebraska* (Opens 2000) Madison, Wisconsin Arthur Andersen LLP Little Rock, Arkansas Tucson, Arizona Cincinnati, Ohio Montgomery, Alabama North Charleston, South Carolina (Opened 2000) CROWNE PLAZA TRANSFER AGENT Omaha, Nebraska Albuquerque, New Mexico First Union National Bank of North Portland (Airport), Oregon Carolina Raleigh/Durham, North Carolina HOLIDAY INN Shareholder Services Group Seaside (Monterey Bay), California Bakersfield, California (Holiday Inn Select) 230 South Tryon Street Tampa, Florida Beaumont, Texas Charlotte, North Carolina 28288-1153 Denver (International Airport), Colorado Toll Free (800) 829-8432 HAMPTON INN & SUITES Denver (Northglenn), Colorado Local (704) 374-6531 Mesquite, Texas Emeryville (Bay Bridge), California Fax (704) 383-8030 Springdale, Arkansas Fort Collins, Colorado Joplin, Missouri 10-K AVAILABILITY HOMEWOOD SUITES Portland (International Airport), Oregon The Company will furnish to any Greensboro, North Carolina Rapid City, South Dakota* shareholder, without charge, a Kansas City (International Airport), Missouri Reno, Nevada copy of the Company's Annual Report Sacramento, California or Form 10-K as filed with the RESORTS Sioux Falls, South Dakota* Securities and Exchange Commission Chateau on the Lake, Branson, Missouri Springdale, Arkansas for the year ended December 31, 1999, World Golf Village Renaissance Resort, Springfield (North), Missouri upon written request to: St. Augustine, Florida Springfield (University Plaza), Missouri* Tucson (International Airport), Arizona Investor Relations INDEPENDENTS West Des Moines, Iowa John Q. Hammons Hotels, Inc. University Plaza, Bowling Green, Kentucky 300 John Q. Hammons Parkway Collins Plaza, Cedar Rapids, Iowa COURTYARD BY MARRIOTT Suite 900 Capitol Plaza, Jefferson City, Missouri Springfield, Missouri* (Opens 2000) Springfield, MO 65806 Capitol Plaza, Topeka, Kansas DAYS INN * Managed Hotel RENAISSANCE Springfield, Missouri* (closed 12/31/99) Charlotte, North Carolina Oklahoma City, Oklahoma (Opened 2000)
42 Board of Directors JOHN Q. HAMMONS JACQUELINE A. DOWDY WILLIAM J. HART Founder, Chairman & Secretary Partner, Husch & Eppenberger, LLC Chief Executive Officer John Q. Hammons Hotels, Inc. John Q. Hammons Hotels, Inc. JOHN E. LOPEZ-ONA DANIEL L. EARLEY President, Anvil Capital KENNETH J. WEBER President, Clermont Savings Bank Executive Vice President & JAMES F. MOORE Chief Financial Officer DONALD H. DEMPSEY Chairman, Champion Products, Inc. John Q. Hammons Hotels, Inc. Executive Vice President & Chief Financial Officer DAVID C. SULLIVAN Equity Inns, Inc. Chairman, ResortQuest International
Committees of the Board AUDIT COMMITTEE COMPENSATION COMMITTEE John E. Lopez-Ona, Chairman William J. Hart, Chairman Donald H. Dempsey James F. Moore James F. Moore David C. Sullivan Officers JOHN Q. HAMMONS JOHN D. FULTON TOM C. HARWELL Founder, Chairman & Vice President Regional Vice President Chief Executive Officer Design & Construction Southern Region Houston, Texas KENNETH J. WEBER WILLIAM T. GEORGE, JR. Executive Vice President & Vice President JOE M. MORRISSEY Chief Financial Officer Capital Planning & Asset Protection Regional Vice President Midwest Region LONNIE A. FUNK PAUL E. MUELLNER Kansas City, Missouri Senior Vice President Vice President Operations Corporate Controller WILLIAM A. MEAD Regional Vice President JACQUELINE A. DOWDY KENT S. FOSTER Eastern Region Secretary Vice President Greensboro, North Carolina Human Resources STEVEN E. MINTON, AIA ROBERT A. NIEHAUS Senior Vice President DEBRA MALLONEE SHANTZ Regional Vice President Architecture Corporate Counsel Western Region Sacramento, California PAT A. SHIVERS ROBERT J. FUGAZI Senior Vice President Regional Vice President VEANNE J. STOCKING Administration & Control Central Region Regional Vice President Dallas, Texas Rocky Mountains Ft. Collins, Colorado
43 [LOGO OF JOHN Q. HAMMONS] 300 JOHN Q. HAMMONS PARKWAY . SUITE 900 . SPRINGFIELD, MO 65806 . (417) 864-4300 . www.jqhhotels.com -----END PRIVACY-ENHANCED MESSAGE-----