-----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, RlBiKVWrZ5N2MvTp5kmiR7lRmAVQSaRgKJmHA0dSzndz1dS8q9OWA4grD0G4hxoE MNTykTlsaQwg2pJZIvpNeA== 0000950131-98-002313.txt : 19980403 0000950131-98-002313.hdr.sgml : 19980403 ACCESSION NUMBER: 0000950131-98-002313 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980102 FILED AS OF DATE: 19980402 SROS: NYSE 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: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13486 FILM NUMBER: 98586112 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 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 1998 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 of 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 New York 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 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 files 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 5,912,062 shares of Class A Common Stock held by non-affiliates of the Registrant was approximately $45,818,480.50 based on the closing price on the New York Stock Exchange for such stock on March 20, 1998. Number of shares of the Registrant's Class A Common Stock outstanding as of March 18, 1998: 6,042,000 DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual report to shareholders for the year ended January 2, 1998 are incorporated by reference into Part II. Portions of the proxy statement for the annual shareholders meeting to be held on May 1, 1998 are incorporated by reference into Part III. PART I ITEM 1. BUSINESS. As used herein, the term "Company" means (i) John Q. Hammons Hotels, Inc., a Delaware corporation, (ii) Hammons, Inc., a Missouri corporation, as predecessor general partner, (iii) John Q. Hammons Hotels, L.P., a Delaware limited partnership, and (iv) corporate and partnership subsidiaries of John Q. Hammons Hotels, L.P., collectively, or, as the context may require, John Q. Hammons Hotels, Inc. only. As used herein, the term "Partnership" means John Q. Hammons Hotels, L.P., a Delaware limited partnership, and its corporate and partnership subsidiaries, collectively, or, as the context may require, John Q. Hammons Hotels, L.P. only. Unless otherwise stated, references to the Company's business and properties refer to the business and properties of the Partnership. OVERVIEW The Company is a leading independent owner, manager and developer of affordable upscale hotels in capital city, secondary and airport markets. The Company owns and manages 45 hotels located in 20 states, containing 11,108 guest rooms or suites (the "Owned Hotels"), and manages four additional hotels located in two states, containing 952 guest rooms (the "Managed Hotels"). On January 2, 1998, the Company also owned seven upscale hotels at various stages of development, which are scheduled to open during 1998 and 1999 (the "Scheduled Hotels"). The Company's existing 49 Owned Hotels and Managed Hotels (together, the "JQH Hotels") operate primarily under the Holiday Inn and Embassy Suites trade names. Most of the Company's hotels are near a state capitol, university, airport or corporate headquarters, plant or other major facility and generally serve markets with populations of up to 300,000 people (or larger populations in the case of airport markets and many of the markets in which the Company is developing new hotels). The Company's strategy is to increase cash flow and thereby enhance shareholder value primarily through (i) developing new hotels in carefully selected growth market areas in which the Company believes it can establish a leading and sustainable market position, (ii) converting the franchises of its existing hotels to franchise brands that are considered to be more upscale, in terms of these brands' higher average room rates, as opportunities for such conversions arise, (iii) selling certain mature assets and re-investing the net proceeds in new hotels constructed by the Company, on a selective basis, and (iv) capitalizing on positive operating fundamentals in the upscale full-service sector of the industry, by owning and operating its hotel portfolio. In implementing its development strategy, the Company works closely with local businesses and local and state officials to develop hotels which meet business and social needs of the community and satisfy long-term demand for hotel rooms. In some of the Company's developments, it benefits from development incentives provided by local governments and other organizations interested in ensuring the development of a quality hotel in their community. The Company designs each new hotel to meet the specific needs of the market and engages in selling efforts in advance of the hotel's opening. The Company's entire management team, including senior management, architects, design specialists, hotel managers and sales personnel, is involved in the development of each new hotel. The Company is evaluating development of a number of hotels in addition to the seven Scheduled Hotels. The JQH Hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups or conventions, as well as leisure travelers. Each of the JQH Hotels is individually designed by the Company, and most contain an expansive multi-storied atrium, with water features and lush plantings, expansive meeting space, large guest rooms or suites and comfortable lounge areas. The Company believes that these design features enhance guest comfort and safety and increase the value perceived by the guest. The JQH Hotels' meeting facilities can be readily adapted to accommodate both larger and smaller meetings, conventions and trade shows. The 25 Holiday Inn JQH Hotels are affordably priced hotels designed to attract the business and leisure traveler desiring quality accommodations, including meeting facilities, in-house restaurants, cocktail lounges and room service, and contain an average of 262 rooms. The 11 Embassy Suites JQH Hotels are all-suite hotels which appeal to the traveler needing or desiring greater space and specialized services and contain an average of 242 suites. The JQH Hotels also include four non-franchise hotels, two Radissons, one Hampton Inn & Suites, two Marriotts, two Homewood Suites, one Crowne Plaza and one Days Inn. Three of the non-franchise hotels have the word "Plaza" in their name and average 232 rooms. The fourth non-franchise hotel is a resort hotel with 301 rooms. The Company determines which brand of hotel to develop depending upon the demographics of the market to be served. Management of the JQH Hotels is coordinated from the Company's headquarters in Springfield, Missouri by its senior management team. Five regional vice presidents are 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. The Company conducts all of its business operations through the Partnership and its subsidiaries. Mr. Hammons beneficially owns all 294,100 shares of Class B Common Stock of the Company, representing 70.88% of the combined voting power of both classes of the Company's Common Stock. The Company is the sole general partner of the Partnership through its ownership of all 6,336,100 general partner units (the "GP Units"), representing 28.31% of the total equity in the Partnership. Mr. Hammons beneficially owns all 16,043,900 limited partnership units of the Partnership (the "LP Units"), representing 71.69% of the total equity in the Partnership. The Class A Common Stock of the Company represents 27.00% of the total equity of the Partnership, and the Class B Common Stock and LP Units beneficially owned by Mr. Hammons represent 73.00% of the total equity in the Partnership. Mr. Hammons is also the beneficial owner of 110,100 shares of Class A Common Stock. The Company's executive offices are located at 300 John Q. Hammons Parkway, Suite 900, Springfield, Missouri 65806 and its telephone number is (417)864-4300. The Company is a Delaware corporation that was formed on September 29, 1994. DEVELOPMENT The Company plans to continue expanding into target market areas where it believes it can establish a leading market position. The following table sets forth information as to the Scheduled Hotels:
Number of --------- Location Franchise/Name Rooms/Suites Description Stage of Development - -------- -------------- ------------ ----------- -------------------- Tampa, FL..................... Embassy Suites 247 Atrium; Convention Opened January 1998 Center St. Augustine, FL............. Resort 300 Atrium; Convention Construction commenced; Center 2nd Quarter 1998 Expected opening Topeka, KS.................... Capitol Plaza 224 Atrium; Convention Construction commenced; Center 3rd Quarter 1998 Expected opening Portland, OR.................. Embassy Suites 251 Atrium; Convention Construction commenced; Center 3rd Quarter 1998 Expected opening Mesquite, TX.................. Hampton Inn & 160 Convention Center Construction commenced; Suites 1st Quarter 1999 Expected opening Coral Springs, FL............. Radisson Plaza 224 Atrium; Convention Construction commenced; Center 2nd Quarter 1999 Expected opening Dallas/Ft. Worth Airport, TX.. Embassy Suites 330 Atrium; Convention Construction commenced; Center 4th Quarter 1999 Expected opening
The Company is currently evaluating development of a number of hotels in addition to the Scheduled Hotels already under construction. Effective February 6, 1998, the Company completed the sale of six hotels to an unrelated party for approximately $40 million, including $34.9 million in cash and the assumption of approximately $5.1 million in debt and other obligations. The purchase price approximated the aggregate net book value of the hotels sold. Five of these hotels served as collateral under the 1994 and 1995 Mortgage Notes. The Company intends to provide replacement collateral in accordance with the indenture provisions. Therefore, the net proceeds of the sale will not be available for new hotel development. Although the Company has in the past chosen to develop rather than acquire existing hotels, the Company may in the future acquire hotels if suitable opportunities arise. The Company continues to be approached from time to time by third-party hotel owners seeking to sell or buy hotels. The Company will continue to evaluate each offer and base its decision on the market location, capital required, and return on investment alternatives. The Company continually monitors its portfolio for under-performing hotels which are then evaluated for potential sale based on investment considerations. The Company's development activity restricts its ability to grow per share income in the short term. Fixed charges for new hotels (such as depreciation and amortization expense and interest expense) exceed new hotel operating cash flow in the first one to three years of operations. As new hotels mature, the Company expects, based on past experience, that the operating expenses for these hotels will decrease as a percentage of revenues, although there can be no assurance that this will continue to occur. The Company plans to continue with its development of full-service, and all-suite hotels based on favorable market fundamentals and because few hotels are being constructed in the upscale sector of the hotel industry. While the Company believes its development efforts represent the best long-term strategy, continued aggressive new hotel development is likely to have a negative effect on short-term earnings. OPERATIONS Management of the JQH Hotels network is coordinated by the Company's senior management team at the Company's headquarters in Springfield, Missouri. The management team is responsible for managing the day-to-day financial needs of the Company, including the Company's internal accounting audits. The Company's management team administers insurance plans and business contract review, oversees the financial budgeting and forecasting for the JQH Hotels, analyzes the financial feasibility of new hotel developments, and identifies new systems and procedures to employ within the JQH Hotels to improve efficiency and profitability. The management team also coordinates each JQH Hotel's sales force, designing sales training programs, tracking future business under contract, and identifying, employing and monitoring marketing programs aimed at specific target markets. The management team is indirectly responsible for interior design of all hotels and each hotel's product quality, and directly oversees the detailed refurbishment of existing operations. The overall management of the JQH Hotels is coordinated by the central management team through five regional vice presidents responsible for guiding the general managers of each JQH Hotel in day-to-day operations. Central management utilizes information systems that track each JQH Hotel's daily occupancy, average room rate, and rooms and food and beverage revenues. Contracted business is tracked for each hotel individually five years into the future using the Company's sales projection and usage reporting system. By having the latest information available at all times, management is better able to respond to changes in each market by focusing sales and yield management efforts on periods of demand extremes (low periods and high periods of demand) and controlling variable expenses to maximize the profitability of each JQH Hotel. Creating operating, cost and guest service efficiencies in each hotel is a top priority to the Company. With a total of 49 hotels under management, the Company is able to realize significant cost savings due to economies of scale. By leveraging the total hotels/rooms under its management, the Company is able to secure volume pricing from its vendors that is not available to smaller hotel companies. The Company employs a systems trainer who is responsible for installing new computer systems and providing training to hotel employees to maximize the effectiveness of these systems and to ensure that guest service is enhanced. Total involvement at each level by management in the layout and design phases of new hotel developments ensures that each hotel is built to meet the operational needs of the hotel staff and best serve the guest. Regional management constantly monitors each JQH Hotel to verify that the Company's high level of operating standards are being met. The Company's franchisors maintain rigorous inspection programs in which chain representatives visit their respective JQH Hotels (typically 2 or 3 times per year ) to evaluate product and service quality. Each chain also provides feedback to each hotel through their guest satisfaction rating systems in which guests who visited the hotel are asked to rate a variety of product and service issues. SALES AND MARKETING The Company's marketing strategy is to market the JQH Hotels both through national and marketing programs. These are local sales managers and a director of sales at each of the JQH Hotels. While the Company makes periodic modifications to the concept in order to address differences and maintain a sales organization structure based on market needs and local preferences, it generally utilizes the same major campaign concept throughout the country. The concepts are developed at its management headquarters while the modifications are implemented by the JQH Hotels regional vice presidents and local sales force, all of whom are experienced in hotel marketing. The sales force reacts promptly to local changes and market trends in order to customize marketing programs to meet each hotel's competitive needs. In addition, the local sales force is responsible for developing and implementing marketing programs targeted at specific customer segments within each market. The Company requires that each of its sales managers complete an extensive sales training program. Before finishing the program, the sales manager must successfully complete certifications in three development phases. The Company's core market consists of business travelers who visit a given area several times per year, including salespersons covering a regional territory, government and military personnel and technicians. The profile of the primary target customer is a college educated business traveler, age 25 to 54, from a two-income household with a middle management white collar occupation or upper level blue collar occupation. The Company believes that business travelers are attracted to the JQH Hotels because of their convenient locations in state capitals, their proximity to airports or corporate headquarters, plants, convention centers or other major facilities, the availability of ample meeting space and the high level of service relative to other hotel operators serving the same markets. The Company's sales force markets to organizations which consistently produce a high volume of room nights and which have a significant number of individuals traveling in the Company's operating regions. The Company also targets groups and conventions attracted by a JQH Hotel's proximity to convention or trade centers (often adjacent). JQH Hotels' group meetings logistics include flexible space readily adaptable to groups of varying size, high-tech audio-visual equipment and on-site catering facilities. The Company believes that suburban convention centers attract more convention sponsors due to lower prices than larger, more cosmopolitan cities. In addition to the business market, the Company's targeted customers also include leisure travelers looking for secure, comfortable lodging at an affordable price as well as women travelers who find the security benefits of the Company's atrium hotels appealing. The Company advertises primarily through direct mail, magazine publications, directories, and newspaper advertisements, all of which focus on value delivered to and perceived by the guest. The Company has developed in- house marketing materials including professional photographs and written materials that can be mixed and matched to appeal to a specific target group (business traveler, vacationer, religious group, reunions, etc.). The Company's marketing efforts focus primarily on business travelers who account for approximately 50% of the rooms rented in the JQH Hotels. The Company's franchise hotels utilize the centralized reservation systems of its franchisors, which the Company believes are among the more advanced reservation systems in the hotel industry. The franchisors' reservation systems receive reservation requests entered (i) on terminals located at all of their respective franchises, (ii) at reservation centers utilizing 1-800 phone access and (iii) through several major domestic airlines. Such reservation systems immediately confirm reservations or indicate accommodations available at alternate system hotels. Confirmations are transmitted automatically to the hotel for which the reservations are made. The Company believes that these systems are effective in directing customers to the Company's franchise hotels. FRANCHISE AGREEMENTS The Company enters into non-exclusive franchise licensing agreements (the "Franchise Agreements") with franchisors which it believes are the most successful brands in the hotel industry. The term of the individual Franchise Agreement for a hotel typically is 20 years. The Franchise Agreements allow the Company to start with and then build upon the reputation of the brand names by setting higher standards of excellence than the brands themselves require. The non-exclusive nature of the Franchise Agreements allows the Company the flexibility to continue to develop properties with the brands that have shown success in the past or to develop in conjunction with other brand names. While the Company currently has a good relationship with its franchisors, there can be no assurance that a desirable replacement would be available if any of the Franchise Agreements were to be terminated. Holiday Inn. The Franchise Agreement grants to the Company a nonassignable, non-exclusive license to use the Holiday Inns service mark and computerized reservation network. The Franchisor maintains the right to improve and change the reservation system to make it more efficient, economical and competitive. Monthly fees paid by the Company are based on a percentage of gross revenues attributable to room rentals, plus marketing and reservation contributions which are also a percentage of gross revenues. The term of the Franchise Agreement is 20 years with a renewal option in the 15th year. Embassy Suites. The Franchise Agreement grants to the Company a nonassignable, non-exclusive license to use the Embassy Suites service mark and computerized reservation network. The franchisor maintains the exclusive right to improve and change the reservation system for the purpose of making it more efficient, economical and competitive. Monthly fees paid by the Company are based on a percentage of gross revenues attributable to suite rentals, plus marketing and reservation contributions which are also a percentage of gross revenues. The term of the Franchise Agreement is 20 years with a renewal option in the 18th year. Other Franchisors. The franchise agreements with other franchisors not listed above are similar in that they are nonassignable, non-exclusive licenses to use the franchisor's service mark and computerized reservation network. Payments and terms of agreement vary based on specific negotiations with the franchisor. COMPETITION Each of the JQH Hotels competes in its market area with numerous full service lodging brands, especially in the upscale market, and with numerous other hotels, motels and other lodging establishments. Chains such as Sheraton Inns, Marriott Hotels, Ramada Inns, Radisson Inns, Comfort Inns, Hilton hotels and Red Lion Inns are direct competitors of JQH Hotels in their respective markets. There is, however, no single competitor or group of competitors of the JQH Hotels that is consistently located nearby and competing with most of the JQH Hotels. Competitive factors in the lodging industry include reasonableness of room rates, quality of accommodations, level of service and convenience of locations. REGULATIONS AND INSURANCE General. A number of states regulate the licensing of hotels and restaurants including liquor license grants by requiring registration, disclosure statements and compliance with specific standards of conduct. In addition, various federal and state regulations mandate certain disclosures and practices with respect to the sales of license agreements and the licensor/licensee relationship. The Company believes that each of the JQH Hotels has the necessary permits and approvals to operate its respective businesses. The Company believes that all necessary permits and approvals to operate the Scheduled Hotels will be obtained in the ordinary course of business. Umbrella, property, auto, commercial liability and worker's compensation insurance are provided to the JQH Hotels under a blanket policy. Insurance expenses for the JQH Hotels were approximately $5.8 million, $6.3 million and $6.2 million in 1995, 1996 and 1997, respectively. The Company believes that the JQH Hotels are adequately covered by insurance. Americans with Disabilities Act. The JQH Hotels and any newly developed or acquired hotels must comply with Title III of the Americans with Disabilities Act ("ADA") to the extent that such properties are "public accommodations" and /or "commercial facilities" as defined by the ADA. Compliance with the ADA requirements could require removal of structural barriers to handicapped areas in certain public areas of the JQH Hotels where such removal is readily achievable. Noncompliance could result in a judicial order requiring compliance, an imposition of fines or an award of damages to private litigants. The Company has taken into account an estimate of the expense required to make any changes required by the ADA and believes that such expenses will not have a material adverse effect on the Company's financial condition or results of operations. If required changes involve a greater expenditure than the Company currently anticipates, or if the changes must be made on a more accelerated basis than the Company anticipates, the Company could be adversely affected. The Company believes that its competitors face similar costs to comply with the requirements of the ADA. Asbestos Containing Materials. Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of Asbestos Containing Materials ("ACMs") when ACMs are in poor condition or in the event of building, remodeling, renovation or demolition. These laws may impose liability for the release of ACMs and may permit third parties to seek recovery from owners or operators of real estate for personal injury associated with ACMs. Based on prior environmental assessments, seven of the Owned Hotels contain ACMs and four of the Owned Hotels may contain ACMs, generally in sprayed-on ceiling treatments or in roofing materials. However, no removal of asbestos from the Owned Hotels has been recommended, and the Company has no plans to undertake any such removal, beyond the removal that has already occurred. The Company believes that the presence of ACMs in the Owned Hotels will not have a material adverse effect on the Company, but there can be no assurance that this will be the case. Environmental Regulations. The JQH Hotels are subject to environmental regulations under federal, state and local laws. Certain of these laws may require a current or previous owner or operator of real estate to clean up designated hazardous or toxic substances or petroleum product releases affecting the property. In addition, the owner or operator may be held liable to a governmental entity or to third parties for damages or costs incurred by such parties in connection with the contamination. The Company does not believe that it is subject to any material environmental liability. EMPLOYEES The Company employs approximately 8,000 full time employees, approximately 350 of whom are members of labor unions. The Company believes that labor relations with employees are good. MANAGEMENT The following is a biographical summary of the experience of the executive officers and other key officers of the Company. John Q. Hammons is the Chairman, Chief Executive Officer, a director and founder of the Company. Mr. Hammons has been actively engaged in the development, management and acquisition of hotel properties since 1959. From 1959 through 1969, Mr. Hammons and a business partner developed 34 Holiday Inn franchises, 23 of which were sold in 1969 to Holiday Inns, Inc. Since 1969, Mr. Hammons has developed 81 hotels on a nationwide basis, primarily under the Holiday Inn and Embassy Suites trade names. David B. Jones is the President, Chief Operating Officer and a director of the Company. Mr. Jones has been President and a director of the Company since February 1993. From 1992 until joining the Company, Mr. Jones was Chief Executive Officer of Davidson Hotel Partnership, a Memphis-based hotel management company. Prior to 1992, Mr. Jones was President and Chief Executive Officer of Homewood Suites, Inc., a subsidiary of The Promus Companies Incorporated, which also then owned Holiday Inns, Inc. Mr. Jones began his career in the hotel industry with Holiday Inns, Inc. in 1966. While with Holiday Inns, Inc., Mr. Jones held the position of Senior Vice President of Franchise and Senior Vice President of Development. He is a former board member of the American Hotel and Motel Association. Debra M. Shantz is Corporate Counsel of the Company. She joined the Company in May 1995. Prior thereto, Ms. Shantz was a partner of Farrington & Curtis, P.C. (now Husch & Eppenberger, LLC), a law firm which serves as Mr. Hammons' primary outside counsel, where she practiced primarily in the area of real estate law. Ms. Shantz had been with that firm since 1988. Pat A. Shivers is Senior Vice President, Administration and Control, of the Company. He has been active in Mr. Hammons' hotel operations since 1985. Prior thereto, he had served as Vice President of Product Management in Winegardner & Hammons, Inc., a hotel management company. Steven E. Minton is Senior Vice President, Architecture, of the Company. He has been active in Mr. Hammons' hotel operations since 1985. Prior to that time, Mr. Minton was a project manager with the firm of Pellham and Phillips working on various John Q. Hammons projects. Jacqueline A. Dowdy has been the Secretary and a director of the Company since 1989. She has been active in Mr. Hammons' hotel operations since 1981. She is an officer of several affiliates of the Company. John D. Fulton is Vice President, Design and Construction of the Company. He joined the Company in 1989 from Integra/Brock Hotel Corporation, Dallas, Texas where he had been Director of Design and Purchasing for ten years. Glenn R. Malone is Senior Vice President, Financial Planning and Corporate Development, of the Company. From 1989 until joining the Company in 1993, he served as Senior Manager, Operations Support for the national chains operated by Hampton Inns, Inc. and Homewood Suites, Inc. (each a subsidiary of The Promus Companies Incorporated). Mr. Malone held the position of Manager, Finance and Administration for Embassy Suites, the national chain, from 1988 through 1989. Beginning in 1978 through the end of 1987, he held various accounting, financial, and operations positions at Holiday Inns, Inc. Lawrence A. Welch has been Vice President, Food and Beverage, of the Company since March 1994. Prior to joining the Company, Mr. Welch worked in the Food and Beverage division with Davidson Hotel Company for ten years. FORWARD-LOOKING STATEMENTS In addition to historical information, this document contains certain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These statements typically, but not exclusively, are identified by the inclusion of phrases such as "the Company believes," "the Company plans," "the Company intends," and other phrases of similar meaning. These forward-looking statements involve risks and uncertainties and are based on current expectations. Consequently, actual results could differ materially from the expectations expressed in the forward-looking statements. Among the various factors that could cause actual results to differ include a downturn in the economy (either regionally or nationwide) affecting overall hotel occupancy rates, revenues at New Hotels not reaching expected levels as quickly as planned as the result of competitive factors or the Company's inability to obtain permanent financing for New Hotels on terms similar to those available in the past. ITEM 2. PROPERTIES. The Company leases its headquarters in Springfield, Missouri from a Missouri general partnership of which Mr. Hammons is a 50% partner. In 1997, the Company made aggregate annual lease payments of approximately $231,000 to such Missouri general partnership. The Company leases from John Q. Hammons the real estate on which two of the Company's hotels are located. These leases are more fully described in Item 13 "Certain Relationships and Related Transactions." The Company owns the land on which 37 of the Owned Hotels are located, while eight of the Owned Hotels are subject to long-term ground leases. DESCRIPTION OF HOTELS GENERAL The JQH Hotels are located in 20 states and contain a total of 12,060 rooms. The JQH Hotels have an average of 246 guest rooms or suites. The JQH Hotels operate primarily under the Holiday Inn and Embassy Suites trade names. The average size of a Holiday Inn hotel room and an Embassy suite is 350 square feet and 545 square feet, respectively. Most of the JQH Hotels have assumed a leadership position in their local market by providing a high quality product in a market unable to economically support a second competitor of similar quality. Each of the JQH Hotels is individually designed by the Company. Many of the JQH Hotels contain an expansive multi-storied atrium, large indoor water features, lush plantings, expansive meeting space, large guest rooms or suites and comfortable lounge areas. In addition to the visual appeal, the Company believes that an atrium design in which each of the hotel's room doors face into the atrium, combined with glass elevators, achieves a greater level of security for all guests. The Company believes this safety factor is particularly relevant to women, who represent a growing portion of its business clientele. The JQH Hotels also appeal to fitness conscious guests as all of the JQH Hotels have at least one swimming pool and most have exercise facilities. The Company believes that the presence of adjacent convention centers provides incremental revenues for its hotel rooms, meeting facilities, and catering services, and that hotels which are adjacent to convention centers occupy a particularly successful niche within the hotel industry. These convention or trade centers are available for rent by hotel guests. Each of the JQH Hotels has a restaurant/catering service on its premises which provides an essential amenity to the convention trade. The Company chooses not to lease out the restaurant business to third-party caterers or vendors since it considers the restaurant business an important component of securing convention business. All of the restaurants in the JQH Hotels are owned and managed by the Company specifically to maintain direct quality control over a vital aspect of the convention and hotel business. The Company also derives significant revenue and operating profit from food and beverage sales due to its ownership and management of all of the restaurants in the JQH Hotels. The Company believes that its food and beverage sales are more profitable than its competitors due to the amount of catering business provided to convention and other meetings at the Owned Hotels. The Company retains responsibility for all aspects of the day-to-day management of each of the JQH Hotels, including establishing and implementing standards of operation at all levels; hiring, training and supervising staff; creating and maintaining financial controls; regulating compliance with laws and regulations relating to the hotel operations; and providing for the safekeeping, repair and maintenance of the hotels owned by the Company. The Company typically refurbishes individual hotels every four to six years, and has spent an average per year of $21.2 million in 1994, 1995, 1996 and 1997 on the Owned Hotels. During 1998, the Company expects to spend approximately $20.8 million on refurbishment of the Owned Hotels. OWNED HOTELS The Owned Hotels consist of 45 hotels, which are located in 20 states and contain a total of 11,108 guest rooms or suites. The following table sets forth certain information concerning location, franchise/name, number of rooms/suites, description and opening date for each Owned Hotel:
Number of Location Franchise/Name Rooms/Suites Description Opening Date - -------- -------------- ------------ ----------- ------------ Montgomery, AL Embassy Suites 237 Atrium; 8/95 Meeting Space: 15,000 sq. ft. (c) Fort Smith, AR(a)(d) Holiday Inn 255 Atrium; 5/86 Meeting Space: 15,000 sq. ft. Springdale, AR Holiday Inn 206 Atrium; 7/89 Meeting Space: 18,000 sq. ft. Convention Ctr: 29,280 sq. ft. Springdale, AR Hampton Inn & Suites 102 Meeting Space 400 sq. ft. 10/95 Tucson, AZ Holiday Inn 299 Atrium; 11/81 Meeting Space: 14,000 sq. ft. Tucson, AZ Marriott 250 Atrium; 12/96 Meeting Space: 11,500 sq. ft. Bakersfield, CA Holiday Inn Select 259 Meeting Space: 9,735 sq. ft. (c) 6/95 Fresno, CA(a)(d) Holiday Inn 210 Meeting Space: 5,000 sq. ft. 12/73 Fresno, CA Holiday Inn (Centre Plaza) 321 Atrium; 10/83 Meeting Space: 16,000 sq. ft. (c) Monterey, CA Embassy Suites 225 Meeting Space: 13,700 sq. ft. 11/95 Sacramento, CA Holiday Inn 364 Meeting Space: 9,000 sq. ft. 8/79 San Francisco, CA Holiday Inn 279 Meeting Space: 9,000 sq. ft. 6/72
Number of Location Franchise/Name Rooms/Suites Description Opening Date - -------- -------------- ------------ ----------- ------------ Denver, CO(a) Holiday Inn 236 Atrium; 10/82 (International Trade Center: 66,000 sq. ft. (b) Airport) Denver, CO Holiday Inn (Northglenn) 236 Meeting Space: 20,000 sq. ft. 12/80 Fort Collins, CO Holiday Inn 259 Atrium; 8/85 Meeting Space: 12,000 sq. ft. Cedar Rapids, IA Collins Plaza 221 Atrium; 9/88 Meeting Space: 11,250 sq. ft. Davenport, IA Radisson 223 Meeting Space: 7,800 sq. ft. (c) 10/95 Des Moines, IA Embassy Suites 234 Atrium; 9/90 Meeting Space: 13,000 sq. ft. Des Moines, IA Holiday Inn 288 Atrium; 1/87 Meeting Space: 15,000 sq. ft. Joliet, IL Holiday Inn 200 Meeting Space: 5,500 sq. ft. 3/71 Bowling Green, KY University Plaza 219 Meeting Space: 4,000 sq. ft. (c) 8/95 Jefferson City, MO Capitol Plaza 255 Atrium; 9/87 Meeting Space: 14,600 sq. ft. Joplin, MO Holiday Inn 264 Atrium; 6/79 Meeting Space: 8,000 sq. ft. Trade Center: 32,000 sq. ft. (b) Kansas City, MO(a) Embassy Suites 236 Atrium; 4/89 Meeting Space: 12,000 sq. ft. Springfield, MO Holiday Inn 188 Atrium; 9/87 Meeting Space: 3,020 sq. ft. Billings, MT(d) Holiday Inn 315 Atrium; 10/72 Meeting Space: 15,000 sq. ft. Trade Center 30,000 sq. ft. (b) Reno, NV Holiday Inn 286 Meeting Space: 8,700 sq. ft. 2/74 Albuquerque, NM Holiday Inn 311 Atrium; 12/86 Meeting Space: 123,00 sq. ft. Greensboro, NC(a) Embassy Suites 221 Atrium; 1/89 Meeting Space: 10,250 sq. ft. Greensboro, NC(a) Homewood Suites 104 Extended Stay 8/96 Portland, OR(a) Holiday Inn 286 Atrium; 4/79 Trade Center: 37,000 sq. ft. (b) Columbia, SC Embassy Suites 214 Atrium; 3/88 Meeting Space: 13,000 sq. ft. Greenville, SC Embassy Suites 268 Atrium; 4/93 Meeting Space: 20,000 sq. ft. Beaumont, TX Holiday Inn 253 Atrium; 3/84 Meeting Space: 12,000 sq. ft. Houston, TX(a) Holiday Inn 288 Atrium; 12/85 Meeting Space: 14,300 sq. ft. Lubbock, TX(d) Holiday Inn (Civic Center) 293 Atrium; 9/82 Meeting Space: 7,000 sq. ft. (c) Lubbock, TX(d) Holiday Inn 202 Atrium; 10/85 Meeting Space: 24,000 sq. ft. Madison, WI Holiday Inn 295 Atrium; 10/85 Meeting Space: 15,000 sq. ft. Convention Ctr: 50,000 sq. ft. (b) Cheyenne, WY(d) Holiday Inn 244 Meeting Space: 12,000 sq. ft. 6/81
________________________ (a) Airport location (b) The trade or convention center is located adjacent to hotel and is owned by Mr. Hammons, except the convention centers in Madison, Wisconsin and Denver, Colorado, which are owned by the Company. (c) Large civic center is located adjacent to hotel. (d) Sold effective February 6, 1998. MANAGED HOTELS The Managed Hotels consist of four hotels (three Holiday Inns and one Days Inn) located in two states (Missouri and South Dakota), and contain a total of 952 guest rooms. Mr. Hammons directly owns three of these four hotels. The remaining hotel is owned by an entity controlled by Mr. Hammons in which he has a 50% interest. Jacqueline Dowdy, a director and officer of the Company, and Daniel L. Earley, a director of the Company, each own a 25% interest in this entity. The Managed Hotels contain an average of 238 rooms per hotel and two of the Managed Hotels have an atrium. There is a convention and trade center adjacent to two of the Managed Hotels. The Company provides management services to the Managed Hotels within the guidelines contained in annual operating and capital plans submitted to the hotel owner for review and approval during the final 30 days of the preceding year. The Company is responsible for the day-to-day operations of the Managed Hotels. While the Company is responsible for the implementation of major refurbishment and repairs, the actual cost of such refurbishments and repairs is borne by the hotel owner. The Company earns a fee based on the size of the project. The Company earns an average annual management fee of 3% of the hotel's gross revenues. Each of the Managed Hotels' management contracts is for an initial term of 20 years, which automatically extends for four periods of five years, unless otherwise canceled. The Company has received an option from Mr. Hammons or entities controlled by him to purchase each of the Managed Hotels. ITEM 3. LEGAL PROCEEDINGS. The Company is not presently involved in any litigation which if decided adversely to the Company would have a material effect on the Company's financial condition. To the Company's knowledge, there is no litigation threatened other than routine litigation arising in the ordinary course of business which would be covered by liability insurance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's Class A common stock (the "Class A Common Stock") has been listed on the New York Stock Exchange sine November 16, 1994 under the symbol "JQH."
STOCK PRICE PER SHARE High Low 1996 First Quarter $ 11-7/8 $ 9-3/4 Second Quarter $ 12-1/8 $ 10 Third Quarter $ 10-7/8 $ 9-5/8 Fourth Quarter $ 9-1/2 $ 7-1/2 1997 First Quarter $ 9-3/4 $ 7-1/2 Second Quarter $ 9-3/8 $ 8 Third Quarter $ 9-5/8 $ 8-5/8 Fourth Quarter $10-13/16 $8-3/16
On March 18, 1998, there were approximately 220 holders of record of the Class A Common Stock then outstanding. Based on the number of annual reports requested by brokers, the Company estimates that it has approximately 1800 beneficial owners of its Class A Stock. On March 20, 1998, the last reported sale price of the Class A Common Stock on the NYSE was $7 3/4. No dividends have been declared for the Company's stock in 1995, 1996 or 1997. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is hereby incorporated by reference to the material appearing in the 1997 Annual Report to Shareholders (the "Annual Report to Shareholders"), filed as Exhibit 13.1 hereto, under the caption "Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is hereby incorporated by reference to the material appearing in the Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Financial Statements of the Company are hereby incorporated by reference to the Consolidated Financial Statements of the Company appearing in the Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item with respect to directors is hereby incorporated by reference to the material appearing in the Company's definitive proxy statement for the annual meeting of shareholders to be held on May 1, 1998 (the "Proxy Statement") under the caption "Election of Directors." Information required by this item with respect to executive officers is provided in Item 1 of this report. See "Management." The information included in the proxy under the caption "16(a) Beneficial Ownership Reports" is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K. 14(A)(1) FINANCIAL STATEMENTS Report of Independent Public Accountants Consolidated Balance Sheets at Fiscal 1997 Year-End and Fiscal 1996 Year-End Consolidated Statements of Income for the 1997, 1996 and 1995 Fiscal Years Consolidated Statements of Changes In Minority Interest and Stockholders Equity (Deficit) for Fiscal 1997, 1996 and 1995 Consolidated Statements of Cash Flows for Fiscal 1997, 1996 and 1995 Notes to Consolidated Financial Statements The Consolidated Financial Statements of the Company are hereby incorporated by reference to the Consolidated Financial Statements of the Company appearing in the Annual Report to Shareholders. 14(A)(2) FINANCIAL STATEMENT SCHEDULES All schedules have been omitted because the required information in such schedules is not present in amounts sufficient to require submission of the schedule or because the required information is included in the consolidated financial statements or is not required. 14(A)(3) EXHIBITS Exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index attached hereto, which is incorporated by reference. Set forth below is a list of management contracts and compensatory plans and arrangements required to be filed as exhibits by Item 14(c).
10.5 Form of Option Purchase Agreement 10.14b Amended and restated employment agreement between John Q. Hammons Hotels, Inc. and David B. Jones 10.18 1994 Stock Option Plan
14(B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the year ended January 2, 1998. 14(C) EXHIBITS The list of Exhibits filed with this report is set forth in response to Item 14(a)(3). The required exhibit index has been filed with the exhibits. 14(D) FINANCIAL STATEMENTS None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Springfield, Missouri, on the 31st day of March, 1998 JOHN Q. HAMMONS HOTELS, INC. By: /s/ John Q. Hammons ------------------------- John Q. Hammons Chairman and Founder Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities at John Q. Hammons Hotels, Inc. on March 31, 1998.
Signatures Title ---------- ----- /s/ John Q. Hammons Chairman and Founder of John Q. Hammons Hotels, Inc. - ------------------------- (Principal Executive Officer) John Q. Hammons /s/ Glenn R. Malone Senior Vice President, Financial Planning and - ------------------------- Corporate Development (Principal Financial Officer Glenn R. Malone and Principal Accounting Officer) /s/ David B. Jones Director, President of John Q. Hammons Hotels, Inc. - ------------------------- David B. Jones /s/ Jacqueline A. Dowdy Director, Secretary of John Q. Hammons Hotels, Inc. - ------------------------- Jacqueline A. Dowdy /s/ William J. Hart Director of John Q. Hammons Hotels, Inc. - ------------------------- William J. Hart /s/ Daniel L. Earley Director of John Q. Hammons Hotels, Inc. - ------------------------- Daniel L. Earley /s/ Robert T. Jones, Jr. Director of John Q. Hammons Hotels, Inc. - ------------------------- Robert T. Jones, Jr. /s/ James F. Moore Director of John Q. Hammons Hotels, Inc. - ------------------------- James F. Moore /s/ John E. Lopez-Ona Director of John Q. Hammons Hotels, Inc. - ------------------------- John E. Lopez-Ona
EXHIBIT INDEX
NO. TITLE PAGE --- ----- ---- *3.1 Restated Certificate of Incorporation of the Company *3.2 Bylaws of the Company, as amended *3.3 Second Amended and Restated Agreement of Limited Partnership of the Partnership *3.4 Certificate of Limited Partnership of the Partnership, filed with the Secretary of State of the State of Delaware *3.5 Agreement of Limited Partnership of John Q. Hammons Hotels Two, L.P. *3.6 Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of the Partnership **3.7 Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership of the Partnership *10.1 1994 Note Indenture **10.2 1995 Note Indenture *10.3 Holiday Inn License Agreement *10.4 Embassy Suites License Agreement *10.5 Form of Option Purchase Agreement *10.6 Collective Bargaining Agreement between East Bay Hospitality Industry Association, Inc. and Service Employee's International Union ***10.6a Collective Bargaining Agreement between Hotel Employee and Restaurant Employee Union Local 49 and Holiday Inn Sacramento--Capitol Plaza, for 06/01/95 to 5/31/98 *10.8 Letter Agreement re: Hotel Financial Services for Certain Hotels Owned and Operated by John Q. Hammons or JQH Controlled Companies ***10.9a John Q. Hammons Building Lease Agreement - 9th Floor (6000 sq. ft.) ***10.9b John Q. Hammons Building Lease Agreement - 7th Floor (2775 sq. ft.) ***10.9c John Q. Hammons Building Lease Agreement - 7th Floor (2116 sq. ft.) ***10.9d John Q. Hammons Building Lease Agreement - 8th Floor (6000 sq. ft.) *10.11 Triple Net Lease *10.12 Lease Agreement between John Q. Hammons and John Q. Hammons Hotels, L.P. ***10.14b Amended and restated employment agreement between John Q. Hammons Hotels, Inc. and David B. Jones ***10.15a Ground lease between John Q. Hammons and John Q. Hammons-Branson, L.P. - (Chateau on the Lake, Branson, Missouri) ***10.15b Ground lease between John Q. Hammons and John Q. Hammons-Hotels Two, L.P. - (Little Rock, Arkansas) *10.17 Operating Agreement of Rivercenter Plaza Development Co., L.C., an Iowa limited liability company *10.18 1994 Stock Option Plan 12.1 Computations of Ratio of Earnings to Fixed Charges of the Company 13.1 1997 Annual Report to Shareholders *21 Subsidiaries of the Company 23.1 Consent of Arthur Andersen LLP 27 Financial Data Schedule
________________________ * Incorporated by reference to the same numbered exhibit in the Company's Registration Statement on Form S-1, No. 33-84570. ** Incorporated by reference to the partnership's Registration Statement on Form S-4, No. 33-99614. *** Incorporated by reference to the same numbered exhibit in the Company's Annual Report on Form 10-K for the Fiscal Year Ended January 3, 1997. EX-12.1 2 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 JOHN Q. HAMMONS HOTELS, INC. HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES (000'S OMITTED)
1993 1994 1995 1996 1997 ------- ------- ------- ------- ------- HISTORICAL EARNINGS: Net income before extraordinary item.................................. $15,390 $15,386 $18,729 $18,524 $ 8,791 Add: Interest, amortization of deferred financing fees and other fixed charges (excluding interest capitalized).......................... 27,839 33,308 28,904 36,337 45,086 ------- ------- ------- ------- ------- Historical earnings................. $43,229 $48,694 $47,633 $54,861 $53,877 ======= ======= ======= ======= ======= FIXED CHARGES: Interest expense and amortization of deferred financing fees........................ $27,412 $32,932 $28,447 $35,620 $44,325 Interest capitalized................... -- 957 5,270 7,162 10,259 Interest element of rentals............ 427 376 457 717 761 ------- ------- ------- ------- ------- Fixed charges....................... $27,839 $34,265 $34,174 $43,499 $55,345 ------- ------- ------- ------- ------- RATIO OF EARNINGS TO FIXED CHARGES (A)................................... 1.55 1.42 1.39 1.26 0.97 ======= ======= ======= ======= =======
(A) In computing the ratio of earnings to fixed charges, earnings have been based on income from operations before income taxes and fixed charges (exclusive of interest capitalized) and fixed charges consist of interest and amortization of deferred financing fees (including amounts capitalized) and the estimated interest portion of rents (deemed to be one-third of rental expense). EX-13.1 3 1997 ANNUAL REPORT TO SHAREHOLDERS John Q. Hammons Hotels, Inc. The premiere owner, operator and developer of upscale, full-service hotels in the nation. FINANCIAL HIGHLIGHTS (in thousands, except per share amounts, ratios and hotel data)
1997 1996 1995 Operating Results Total Revenues $302,274 $268,847 $235,179 Other Data EBITDA 87,897 78,178 65,522 Share Data EBITDA Per Share/LP Unit 3.93 3.49 2.93 Operating cash flow per share 1.95 1.90 1.66 (EBITDA less interest expense) - ------------------------------------------------------------------------------- Selected Balance Sheet Data Total assets $816,733 $658,072 $542,371 Total debt, including current portion 695,791 531,143 458,094 Minority Interest of Holders of the LP Units 39,399 33,662 23,082 Equity 18,508 16,094 10,955 -------- -------- -------- Total $ 57,907 $ 49,756 $ 34,037 OPERATING DATA Owned Hotels Number of Hotels 45 39 37 Number of Rooms (end of year) 11,108 9,666 9,312 Average Occupancy 62.9% 64.7% 67.1% Average Daily Room Rate $ 82.38 $ 76.16 $ 71.68 Room Revenue Per Available Room (RevPAR) $ 51.84 $ 49.25 $ 48.09 - -------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE] Total Revenues 95 96 97 300 290 280 270 260 250 240 230 220 $ IN THOUSANDS [BAR GRAPH APPEARS HERE] EBITDA $ Allocation 95 96 97 55 60 65 70 75 80 85 90 $ IN MILLIONS [_] Original 31 [_] Mgt. Company [_]Class of 95 [_]Class of 96 [_]Class of 97 (6 hotels) (2 hotels) (6 hotels) [BAR GRAPH APPEARS HERE] REVPAR 95 96 97 45 46 47 48 49 50 51 52 $ letter TO OUR STOCKHOLDERS In recognition of our heritage and long-term stability, John Q. Hammons Hotels, Inc. is proud to celebrate the company's 40th anniversary in the lodging industry. To commemorate this landmark achievement, the theme: "Building on the Past, Developing for the Future" is a fitting statement of our organization's unique competitive advantage in the marketplace. [PIE CHART APPEARS HERE] Total Revenue Food & Beverage Revenue 29% Rooms & Other Revenue [PIE CHART APPEARS HERE] EBITDA Food & Beverage EBITDA 27% Rooms & Other EBITDA Though many things have changed in the last four decades of operation, we have remained steadfast in our commitment to excellence and serving customers in the upscale, full-service hotel sector. As always, our mission is to provide outstanding products, reasonable prices, and extra amenities to enrich our customers' experience. Our well-known "signature elements" including larger guest rooms, spectacular atriums, and top quality meeting room space are three additional amenities we offer to add more value to each guest's stay. By stressing superior customer service at every level, we earn the loyalty necessary to keep guests coming back. To achieve even greater success, John Q. Hammons Hotels will continue to grow by building upon our many existing strengths and focusing on future customer needs. Through our emphasis on value-enhancing amenities, superior customer service, attention to the bottom line, and well-focused objectives, we will prosper like never before. In addition to providing you with an overview of the company's financial success in 1997, this annual report is designed to highlight our major competitive strengths: Our Points of Difference; Our Performance; Our People; and Our Development. We will also describe the key objectives that position us for continued long-term success. In short, John Q. Hammons Hotels has the resources and objectives to excel. Our first-class facilities set us apart from the competition. Our performance is proven. Our people have the experience to succeed. We are dedicated to innovation and technology. And our plans for new development are as aggressive as ever encompassing new markets that will drive cash flow. Join us as we look at another profitable year in our history, and demonstrate the many reasons why we are poised for greater success in the years ahead. 1997... A Year of Record Performance. By any measure, 1997 was an outstanding year for John Q. Hammons Hotels. Here is a "snap-shot" summary of our major accomplishments in 1997: We opened six new hotels, growing our company by 15%. We achieved $302 million in Total Revenue, representing a 12% increase over 1996. We generated $87.9 million in EBITDA, representing a 12% increase over 1996. We continued to show strong growth in ADR. We initiated the sale of six hotels, which closed in February, 1998. We re-franchised three hotels to maximize their potential and profitability. JQH Through our emphasis on value-enhancing amenities, superior customer service, attention to the bottom line, and well-focused strategies, we will prosper like never before. " ( ) " 1 Our Key Strategies The outstanding achievements of John Q. Hammons Hotels in 1997 are the result of our company's vision and strategic approach to long-term growth. To better explain our exciting future, we would like to address the key objectives that are driving our business decisions. The full-service, upscale hotel sector is the place to be. Even though the industry trend in recent years was toward building in the limited-service hotelsector, we have remained committed to the upscale, full-service market. Now more than ever, our strategy is paying off. The limited-service sector has been over-built, but the upscale, full-service sector has had relatively little supply growth. For the foreseeable future, we will remain a strong development company for many reasons. As a rule, guests prefer newer facilities. We can incorporate the amenities customers want. And our focus on development is creating a steady stream of new, quality products -- which will drive our cash flow. In the last three years, over 200,000 new rooms have been added to the hotel industry. However, the average new hotel had less than 90 rooms. The majority of this room supply has been added in the Budget, Economy and Mid-Priced sectors while the Upscale and Luxury sectors have had relatively little new supply added. Today, most experts agree that the upscale sector is the place to be due to its more favorable operating fundamentals. While strong growth did occur in the upscale sector during the late 1980's when 100% financing was available, today's equity requirement of 30-35% has greatly reduced the playing field in terms of upscale hotel developers. Our 40-year history, strong reputation as a developer, and proven track record gives us the ability to develop hotels in the upscale sector where a limited number of developments are projected for the next two to three years. Continuously maximize company value. As part of this strategy, we repositioned three existing hotels under new brand names in 1997. Due to a John Q. Hammons Hotels Company Structure JQH Hotels Inc. Stockholders Mr. John Q. Hammons 28.3% General 71.7% Limited Partner Interest Partner Interest JQH Hotels L.P. 28 Hotels ('94 & '95 Collateral) JQH Hotels Two L.P., 17 Hotels (Development Entity) Celebrating 40 years 2 L Letter to our Shareholders continued [PICTURE OF MANAGEMENT TEAM] The Management Team of John Q. Hammons Hotels Front row: Jacqueline A. Dowdy, Secretary David B. Jones, President & Chief Operating Officer Steven E. Minton, Senior Vice President Architecture John Q. Hammons, Chairman & Chief Executive Officer 2nd row: Lawrence A. Welch, Vice President Food & Beverage Pat A. Shivers, Senior Vice President Administration & Control Bill Parker, Regional Vice President Rocky Mountain Region William Mead, Regional Vice President Eastern Region Glenn R. Malone, Senior Vice President Financial Planning & Corporate Development Debra Mallonee Shantz, Corporate Counsel 3rd row: Lonnie Funk, Regional Vice President Midwest Region Robert Fugazi, Regional Vice President Southern Region John D. Fulton, Vice President Design & Construction 4th row: Robert Niehaus, Regional Vice President Western Region James Miller, Vice President Sales & Marketing window of opportunity to dispose of several mature assets, we also sold six existing hotels in February 1998. The six hotels were sold for $40 million and saved the company approximately $15 million in capital expenditures for 1998. The net proceeds of the sale will be invested in newer hotels. EBITDA is the basis to use in determining our equity value. To determine the equity value of most hotels, and hotel companies that primarily own 1957 1958 John Q. Hammons enters the hotel business. 1959 10 Holiday Inn(R) franchises are purchased by Mr. Hammons. 1961 Mr. Hammons co-founds Winegardner & Hammons, Inc. (WHI) for the purpose of hotel development. 1967 1969 John Q. Hammons Hotels is formed. 1970 First Holidome hotel is built. 1975 First hotel with expansive meeting space is built. 1977 1979 50 hotels are either owned or managed by the company and WHI. DEVELOP John Q. Hammons Hotels 3 hotels, Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) is used as the basis for the valuation. As an owner/operator of hotels, we believe EBITDA is the best place to start in determining our company's equity value. Since going public in 1994, we have consistently improved EBITDA. When determining John Q. Hammons Hotels' value, an EBITDA multiple must be used. Typically, strong EBITDA growth dictates the use of a higher multiple. For our company, a higher multiple should be considered since 14 of the 45 hotels operating at the end of 1997 have been opened during 1995, 1996 and 1997. These 14 hotels have been open only 16 months on average and therefore have another two years on average, to reach a mature EBITDA. The additional time from now to maturity on these newer hotels will be an important component in the rate of growth of our future EBITDA. In addition to the value of the company determined using a multiple of EBITDA, the amount of cash and the amount of construction in progress on our balance sheet should be considered since both of these assets are a part of our development pipeline. As we open each new hotel, our potential for additional EBITDA growth is increased. Therefore the value of cash and construction in progress cannot be ignored. After determining the total of, (1) the product of EBITDA and its multiple, (2) cash, and (3) construction in progress, one additional factor should be considered. Total debt on the company's balance sheet should be subtracted from the total above in order to arrive at an estimate of our equity value. You may wish to consider some variations of the above process to estimate the company's equity value. However, EBITDA is an all-important consideration as a base in any methodology. New hotels typically outperform older hotels. One of the obvious benefits derived from being a development company is that we continue to add new hotels to our portfolio. Industry experts believe that new hotels typically outperform older hotels. As a part of our ongoing strategy, we will also continue to review our existing portfolio to determine if certain hotels should be sold due to market and/or physical product issues. The sale of six hotels this past February, coupled with our continued new hotel openings, is creating a "younger" company. Our youthfulness provides both us and you with an advantage in terms of performance and value. The management team at John Q. Hammons believes it is important for shareholders and employees to understand our key objectives and strengths. By sharing a common vision, together we can continue to build on the past and develop for an exciting, more prosperous future. /s/ John Q. Hammons John Q. Hammons Chairman and CEO /s/ David B. Jones David B. Jones President and COO 1980 First atrium style hotel is built. 1987 1988 Embassy Suites(R) franchise is added. 1990 80 hotels are either owned or managed by the company and WHI. 1993 The senior management team is brought on board. 1994 John Q. Hammons Hotels goes public. 1995 Radisson(R) franchise joins the company to enhance our upscale portfolio. 1996 Marriott(R) franchise is added. 1997 The company develops two first-class resorts, Chateau on the Lake, Branson, MO and World Golf Village, St Augustine, FL. 1997 Hotels GROW DIVERSIFY 4 D Our Points of Difference Extra amenities that add value. Unlike many of today's standard hotels that often seem alike, from the moment you enter a John Q. Hammons hotel, you'll find a large number of sensational features that add luxury, comfort and differentiate our properties from our competitors. Upon closer inspection, our "points of difference" become even more apparent. When you combine all of the extra amenities we provide, our hotels not only stand out in the marketplace, we deliver a far superior value for our guests' accommodation dollar. [PHOTO] The moment you enter a John Q. Hammons hotel, you'll find a large number of sensational features that differentiate our facilities from the competition Our signature atriums. At John Q. Hammons Hotels, we have become well known for three outstanding features we refer to as our "signature elements." The first is our awe- inspiring atriums. They are perhaps some of the most dramatic and obvious points of difference in many of our properties. By adding spaciousness, lush foliage, waterfalls and spectacular multi-story views, our atriums project an image of elegance, luxury and style. Due to their incredible popularity and timeless architectural appearance, we are incorporating atriums in virtually every new hotel we develop. Expansive meeting space. It's interesting to note that our founder, John Q. Hammons, was one of the first innovators in the hotel industry to fully recognize the demand for additional meeting space in America's hotels. Acting on his belief, Mr. Hammons began adding larger and more flexible meeting space in the company's hotels many years ago. As business travel has steadily increased in the last few years, expansive meeting space has become a real benefit to our company, since the industry has been focused on developing limited service hotels where meeting facilities are not provided. [PHOTO] Larger guest rooms. Notice something different about your room at a John Q. Hammons hotel? Beyond its attractive, contemporary decor, there's a good chance the room is significantly larger than competitive guest rooms you've stayed in. To create this third signature element in our hotels, we incorporate 15 to 20% additional square feet on average into all of the new guest rooms we build. Because bigger is simply better, our spacious rooms make guests feel more relaxed and more at home. [PHOTO] Superior convention and meeting facilities set us apart. 5 [PHOTO] Business centers function as satellite offices for business travelers to maximize their productivity. [PHOTO] From beautiful atriums to larger guest rooms, our signature elements enhance comfort and value. Podium check-in Greeting many of our guests as they walk in the door is one of our newest innovations in personal customer service: Podium Check-In. As a departure from the traditional hotel "front desk," podium check-in enables our guest service representatives to meet one-on-one with customers and provide dedicated individual attention. We believe podium check-in is an exciting new standard in the hotel industry, and our customer satisfaction surveys confirm the benefits it provides. By enhancing customer/employee interaction and communication with podium check-in, we can welcome our guests in a friendlier, more efficient way. Business traveler amenities. For the added convenience of our business travelers, we offer a wide variety of amenities to make officing on the road easier. In many of our locations we are modifying guest rooms to be more convenient for the business traveler, adding such amenities as desk areas with swivel chairs, telephone jacks for computer modems and other features to help guests conduct business. Just open up your briefcase or laptop computer and you're ready to go to work. Our new Corporate Business Centers offer still more convenience for today's executives. Complete with fax machines, computers, secretarial services, and work stations, corporate business centers function like satellite offices. From putting the final touches on a proposal or presentation, to faxing off a new sales contract to the home office, our corporate business centers help keep busy people productive and profitable when they're on the go. [PHOTO] Podium check-in is setting new standards in personal attention and service. Celebrating 40 years 6 Our Points of Difference continued Fine dining is one of our many specialties. [PHOTO APPEARS HERE] Savor the difference in our food. When you stop and consider that approximately 27% of John Q. Hammons Hotels' EBITDA is generated in food and beverage sales, you can understand why we are so committed, even fanatical about the quality, freshness and artistic presentation of all the food we serve. Thanks to the extra lengths our hotels and employees go to, our food service excellence is a difference our customer can see and savor. Witness the artistry of our display cooking. [PHOTO APPEARS HERE] Display cooking. Our increasing focus on contemporary display cooking is evidence of our commitment to offering the finest in culinary delights. Display cooking puts our kitchens, chefs and food service staff in the spotlight on center stage. As delicious menu items are carefully prepared in full view of our customers, our display cooking allows customers to witness our attention to detail, fresh ingredients, and quality first hand. Display cooking helps ensure that our guests enjoy both great meals, and fine dining experiences. Meeting planners experience menu choices prior to their event at our chef's table. [PHOTO APPEARS HERE] Chef's table. Our chef's table is yet another innovative difference at many of our hotels. When a customer requests a banquet meal for a convention, business meeting, wedding reception, or another large get-together, our chef's table ensures the highest level of satisfaction. By allowing the customer to sample various menu items before the event, they can choose their favorite hors d'oeuvres, salads, entrees and desserts in advance. Special requests such as fresh seafood, kosher items and vegetarian dishes are available as well. By taking advantage of a delicious chef's table preview, there are no worries, no surprises on the day of the event, and the host earns praise from his or her guests. We are committed, even fanatical about food quality 7 As our guests' tastes have become more sophisticated, we've added more amenities to satisfy them. Whether it's a superb meal or an invigorating workout, we provide our guests with everything they need to relax. [PHOTOS APPEAR HERE] Responding to America's health trends. With the increasing emphasis being placed on leading healthier lifestyles, John Q. Hammons Hotels is responding and tailoring many of our food and beverage services to meet guests' more discriminating tastes. Our restaurants are adding a wider variety of health-conscious menu options. We are also preparing foods to reduce saturated fats, cholesterol, sodium and preservatives. As Americans' consumption of liquor has decreased in recent years, reducing demand for night clubs and lounges, we have been converting portions of that valuable space into meeting rooms, fitness centers and other productive areas. Sure you can still enjoy a cocktail at our hotels, but with our new espresso coffee bars, fine imported beers, wines and bottled waters, today there are more choices than ever before. Exercise... your option. Just because you're traveling doesn't mean you have to give up your exercise routine. Now, fitness centers and sparkling swimming pools have become standard features in every new property. From state-of-the-art treadmills and stationary bicycles, to stair-step machines and weights, our fitness centers are as well equipped as many of today's upscale health clubs. And our generously sized swimming pools are great for lap-swimming, water aerobics, or simply a relaxing dip at the end of the day. In the winter time, many families with children come to our hotels for weekend getaways with much of the fun centered around the pool. Celebrating 40 years 8 Our Points of Difference continued So many amenities, yet so affordable. While other hotels offer limited amenities, John Q. Hammons Hotels takes great pride in making ordinary features extraordinary. Whether it's the addition of skylights, marble accents, rich wood furnishings or elegant brass fixtures, you'll find we go the extra mile to make our properties even more special. We believe these added touches deliver higher levels of luxury and style that customers notice and appreciate. To set our hotels even further apart from the competition, we provide all of our additional amenities, luxury and style at surprisingly affordable prices, which is another very important point of difference for John Q. Hammons Hotels. No wonder our guests keep coming back. Trivia 1 [ART APPEARS HERE] There is 1,125,086 gallons of water in all of our swimming pools. Trivia 2 Our hotels have a combined total of 914,200 square feet of meeting space, [ART APPEARS HERE] the equivalent to 19+ football fields. [PHOTOS APPEAR HERE] Architectural accents, natural lighting and generous plantings enrich the ambiance of our facilities. 9 [PHOTOS APPEAR HERE] Business travelers appreciate the comfort and meeting facilities of John Q. Hammons Hotels. Trivia 3 [ART APPEARS HERE] In 1997 12,654,000 watts were used in the lightbulbs of JQH Hotels. Celebrating 40 years 10 [PHOTO APPEARS HERE] Being a member of the Marriott family positions the company well in the upscale sector. Our Performance Living up to our commitment. Many companies in the hotel industry talk about their commitment to service quality, but at John Q. Hammons Hotels we go many steps further to make sure our everyday performance is proof of our commitment. By carefully monitoring and continually measuring our service quality, we know when we are excelling, or if we need to improve. We believe it's important for our management teams and every other employee in the John Q. Hammons Hotels family to know that their performance is being measured. And, they respond accordingly by raising the service they provide to the highest levels possible. When our hotels and employees shine, as they usually do, those who deliver superior service are recognized and rewarded. In fact, during 1997 the superior performance of John Q. Hammons Hotels was demonstrated once again by our industry-leading customer satisfaction scores which are measured by our franchisors. For instance, based on the Total Quality Index (TQI) scores provided by (Embassy Suites), four of our Embassy Suites ranked in the top ten of the nation's 140 Embassy Suites hotels. And according to Combined Quality Index (CQI) scores provided by (Holiday Inn), our Holiday Inn properties are some of the best performing properties among more than 1,800 Holiday Inns nationwide. As you can see, when it comes to service quality, John Q. Hammons Hotels does more than promote it. We measure our performance, track it closely, and continually work to improve our scores. We measure our performance, track it closely, and continually work to improve our scores. [PHOTO APPEARS HERE] Holiday Inn, the company's first franchise, continues to lead the country in guest satisfaction. 11 Top-performing brands. Over the years, the John Q. Hammons Hotels name has been closely associated with Holiday Inn(R), and for good reason. In the late 1950's, Holiday Inn was the company's first franchise brand. Yet today, in addition to Holiday Inn, John Q. Hammons Hotels is proud to be affiliated with many of the other finest names in the hospitality industry. In 1988, we formed an alliance with Embassy Suites(R). We began our affiliation with Radisson and Hampton Inn & Suites in 1995; Marriott and Homewood Suites joined our company in 1996. Through product diversification and association with these premiere franchises, John Q. Hammons Hotels is able to strengthen the overall performance of our entire hotel portfolio. With access to this diverse product line, the company enjoys a key strategic advantage. We are able to identify promising growth markets and develop the particular hotel franchise that provides the greatest competitive strength in the marketplace. Since we began adding new brand names to our premiere product line, our hotel portfolio has become increasingly diverse in the last several years. We believe this strategy creates a more balanced product mix and provides additional stability for the company as a whole. [ART APPEARS HERE] The Torchbearer Award signifies that a hotel has achieved the highest levels of excellence in all aspects of operations - from product quality to customer satisfaction. [ART APPEARS HERE] The Rose Award recognizes excellence in product quality and guest satisfaction and is the highest distinction an Embassy Suites hotel can achieve. Brand Mix by Number of Rooms Other Embassy Holiday Inn 1994 [PIE CHART APPEARS HERE] Marriott Other Embassy 1997 Holiday Inn [PIE CHART APPEARS HERE] Marriott Other 1999 Holiday Inn Embassy [PIE CHART APPEARS HERE] Our product mix has become increasing diverse and more evenly balanced. In 1994, the majority of our hotels were Holiday Inns. By 1999, we will have a more diverse portfolio of brands. Celebrating 40 years 12 Our Performance continued Positioning the company for greater success. Due to a number of major accomplishments during 1997, we have gained additional ground in our efforts to position the company for even greater performance and success. The accomplishments most relevant to our positioning were made in three primary areas: hotel dispositions, our financial strength, and the new hotels we opened. In terms of the dispositions, as we mentioned in the Shareholder Letter, due to a window of opportunity to sell several mature assets, we began negotiations to sell six of our older hotels. The closing of this transaction took place early in 1998 at a sale price of $40 million. Based on the age and condition of the hotels we sold, projections indicate that the company will also save approximately $15 million in capital expenditures during 1998 that would have been necessary for refurbishment. When you look at the company's RevPAR (Revenue Per Available Room) over the last four years, the reasons for selling the hotels becomes even more apparent. Even though revenues and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the company as a whole increased significantly in 1996 and 1997, RevPAR achievement was inhibited by these hotels. By eliminating the six hotels from our portfolio, our RevPAR will grow at a much steeper rate in 1998. The RevPAR graph shown here illustrates the improvement that the sale of the six hotels creates in the company's historic RevPAR performance. It also illustrates the RevPAR premium the company has achieved compared to the overall hotel industry. EBITDA Margin [BAR GRAPH APPEARS HERE] 95 96 97 22 23 24 25 26 27 28 29 30 % Mature Hotels Total Company Note: 1997 included six new hotel openings, holding company margin flat. RevPAR Comparison [BAR GRAPH APPEARS HERE] $58.00 $53.00 $48.00 $43.00 $38.00 $33.00 1994 1995 1996 1997 Company RevPAR excluding sold hotels Company RevPAR including sold hotels Industry RevPAR RevPAR performance of 6 hotels sold During 1997, we set new records for EBITDA Margin and RevPAR in the history of the company. we have gained additional ground in our efforts to position the company for even greater performance and success 13 Six new hotels opened in 1997, "the year of the suites." Our pipeline of new development projects continued to flow steadily in 1997. When the year came to close, we had successfully opened six beautiful new hotels. With the addition of four new Embassy Suites, including one in Omaha, Nebraska, one in Charleston, West Virginia, one in Little Rock, Arkansas, and one in Raleigh-Durham, North Carolina, 1997 was definitely the year of the suites. As demonstrated by these four new developments, along with another new Embassy Suites opened in January of 1998 in Tampa, Florida, John Q. Hammons Hotels is firmly committed to the quality and value of the Embassy brand. In 1997, the mature hotels in the Embassy Suites system of 140 hotels achieved an occupancy of 75.1% and an average room rate of $114.08. Consumers recognize the value of the Embassy Suites brand. Embassy Suites is larger than all other all- suite brands combined. Adding even more prestige and fanfare to this year's development success was the grand opening of one of the most spectacular showcase facilities ever constructed in the history of our company, the Chateau on the Lake Resort Hotel & Convention Center in Branson, Missouri. Also opened during the year was a Homewood Suites Hotel in Kansas City, Missouri, the company's second hotel of this brand. After opening six new hotels in 1995, two hotels in 1996, six hotels in 1997, and with four more hotels scheduled for completion in 1998, plus the sale of six older hotels, the average age of the properties in our portfolio is decreasing. This is yet another way we are positioning John Q. Hammons Hotels for maximum value in the future. Average Age of JQH Hotels [BAR GRAPH APPEARS HERE] 96 97 98 8 9 10 11 12 Years [PHOTO APPEARS HERE] Chateau on the Lake Resort Hotel & Convention Center Branson, Missouri [PHOTO APPEARS HERE] Embassy Suites Charleston, West Virginia [PHOTO APPEARS HERE] Embassy Suites, Raleigh-Durham, North Carolina [PHOTO APPEARS HERE] Embassy Suites, Omaha, Nebraska [PHOTO APPEARS HERE] Homewood Suites, Kansas City, Missouri [PHOTO APPEARS HERE] Embassy Suites, Little Rock, Arkansas Celebrating 40 years 14 Employee excellence is recognized and rewarded. [PHOTO APPEARS HERE] Our People Serving guests with pride. You may be surprised to learn that John Q. Hammons Hotels has one of the lowest employee turn-over rates in the hotel industry. This fact is even more remarkable when you consider the nation's unemployment rate has been at or near an all-time low. So how can we account for this loyalty? Actually there are many reasons why the more than 8,000 people who work for the company stay with the company. Since we began as a small, family-oriented operation, many of the values and philosophies instilled by our founder, John Q. Hammons, are the foundation of our corporate culture. Taking pride in one's work, the commitment to quality, honesty, and customer-focused service are just a few of our guiding principles. But just as importantly, John Q. Hammons Hotels understands how valuable good employees truly are, especially when running a successful service business. We know the better we treat our employees, the better they'll treat our guests. That's why the company invests heavily in training, incentive-based programs, and recognition awards. An excellent example is our Service Above & Beyond program which encourages every employee to provide guests with service that is above and beyond what is normally expected. Guests are asked to fill out a card when they receive special service. By doing so, they are entered in a drawing for a prize. The employee who is nominated for Service Above & Beyond earns recognition points that can be redeemed for merchandise and trips. we understand how valuable good employees truly are, especially when running a successful service business. Our employee turn-over rate is among the lowest in the industry. [PHOTOS APPEAR HERE] 15 [PHOTO APPEARS HERE] Our emphasis on training and employee development empowers our people and improves service. Our entire sales organization participates in ongoing sales training conducted by Master Connection Associates. Our key sales employees learn how to identify our customers' needs and tailor our services to maximize sales. Employees are rewarded based on their sales performance, the company generates additional business, and customers are more satisfied. Our reward programs also extend to the management level. The annual President's Award is presented to the general manager who has demonstrated exceptional skills in leadership, employee relations, initiative, and who has managed a financially sound property. We also present awards for Hotel of the Year, Food & Beverage Team of the Year and Sales Team of the year. Trivia 4 [ART APPEARS HERE] 9,312,975 sheets are washed at JQH hotels in a year. Trivia 5 [ART APPEARS HERE] We serve 5,777,750 meals in a year. Celebrating 40 years 16 Our People continued Superior senior management. Among the greatest advocates of employee development programs and recognition awards are the members of our senior management team. With more than 200 years of combined experience in the hospitality industry, senior management views each employee as a vital member of John Q. Hammons Hotels' family. By providing motivation, sharing their vision and helping to instill the spirit of excellence in every employee, our senior managers are guiding the company toward another 40 years of unprecedented success. [PHOTO APPEARS HERE] Motivated to take pride in their work, our employees deliver industry-leading service. Trivia 6 [ART APPEARS HERE] JQH hotels hosted 11,772 wedding receptions or conventions last year. our senior managers are guiding the company toward another 40 years of unprecedented success 17 Introducing the Class of '98 Future Stars With consumer demand for full-service, upscale hotels increasing faster than supply, we will continue to develop more premiere hotels in promising growth markets. Presently, four new stars in the John Q. Hammons Hotels' line-up are scheduled to open during 1998. And you can be sure that more plans are on the drawing board for 1999 and beyond. Recognizing the vast, untapped potential for upscale hotels in communities across the country, we look to the future with optimism and excitement. Whether you're a stockholder, potential investor, employee or guest, we hope you'll join John Q. Hammons Hotels as we build on the past, and develop for the future. . . Trivia 7 [ART APPEARS HERE] 45 miles of wire goes into the average JQH hotel [PHOTO APPEARS HERE] Embassy Suites Tampa, Florida Opened January 1998 [PHOTO APPEARS HERE] Capitol Plaza Hotel Topeka, Kansas Scheduled to open third quarter of 1998 Trivia 8 26,171 tons of concrete was required to build the World Golf Village Resort Hotel. [PHOTO APPEARS HERE] Embassy Suites Portland, Oregon Scheduled to open third quarter of 1998 [PHOTO APPEARS HERE] Scheduled to open second quarter of 1998 World Golf Resort Hotel & St. Johns County Convention Center St. Augustine, Florida Celebrating 40 years 19 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 secondary and airport market areas. The Company owns and manages 45 hotels located in 20 states, containing 11,108 guest rooms and suites (the "Owned Hotels"), and manages four additional hotels located in two states, containing 952 guest rooms (the "Managed Hotels"). On January 2, 1998, the Company was at various stages of development on seven upscale hotels, which are scheduled to open during 1998 and 1999 (the "Scheduled Hotels"). The Company's existing 49 Owned Hotels and Managed Hotels (together, the "JQH Hotels") operate primarily under the Holiday Inn and Embassy Suites trade names. Most of the Company's hotels are near a state capitol, university, airport or corporate headquarters, plant or other major facility and generally serve markets with populations of up to 300,000 people (or larger populations in the case of airport markets and many of the markets in which the Company is developing new hotels). The Company's strategy is to increase cash flow and thereby enhance shareholder value primarily through (i) developing new hotels in carefully selected growth market areas in which the Company believes it can establish a leading and sustainable market position, (ii) converting the franchises of its existing hotels to franchise brands that are considered to be more upscale, in terms of these brands' higher average room rates, as opportunities for such conversions arise, (iii) selling certain mature assets and re-investing the net proceeds in new hotels constructed by the Company, on a selective basis, and (iv) capitalizing on positive operating fundamentals in the upscale full-service sector of the industry, by owning and operating its hotel portfolio. In implementing its development strategy, the Company works closely with local businesses and local and state officials to develop hotels which meet business and social needs of the community and satisfy long-term demand for hotel rooms. In some of the Company's developments, it benefits from development incentives provided by local governments and other organizations interested in ensuring the development of a quality hotel in their community. The Company designs each new hotel to meet the specific needs of the market and engages in selling efforts in advance of the hotel's opening. The Company's entire management team, including senior management, architects, design specialists, hotel managers and sales personnel, is involved in the development of each new hotel. The Company is evaluating development of a number of hotels in addition to the seven Scheduled Hotels. The JQH Hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups or conventions, as well as leisure travelers. Each of the JQH Hotels is individually designed by the Company and most contain an expansive multi-storied atrium with water features and lush plantings, expansive meeting space, large guest rooms or suites and comfortable lounge areas. The Company believes that these design features enhance guest comfort and safety and increase the value perceived by the guest. The JQH Hotels' meeting facilities can be readily adapted to accommodate both larger and smaller meetings, conventions and trade shows. The 25 Holiday Inn JQH Hotels are affordably priced hotels designed to attract the business and leisure traveler desiring quality accommodations, including meeting facilities, in-house restaurants, cocktail lounges and room service, and contain an average of 262 rooms. The 11 Embassy Suites JQH Hotels are all-suite hotels which appeal to the traveler needing or desiring greater space and specialized services and contain an average of 242 suites. The Company determines which brand of hotel to develop depending upon the demographics of the market to be served. Management of the JQH Hotels is coordinated from the Company's headquarters in Springfield, Missouri, by its senior management team. Five regional vice presidents 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. 20 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 16, 1994 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 the Class A Common Stock for the period indicated as reported by the New York Stock Exchange Composite Tape:
Stock Price Per Share High Low 1996 First Quarter $ 11-7/8 $ 9-3/4 Second Quarter $ 12-1/8 $ 10 Third Quarter $ 10-7/8 $ 9-5/8 Fourth Quarter $ 9-1/2 $ 7-1/2 1997 First Quarter $ 9-3/4 $ 7-1/2 Second Quarter $ 9-3/8 $ 8 Third Quarter $ 9-5/8 $ 8-5/8 Fourth Quarter $10-13/16 $8-3/16
On March 13, 1998, the last reported sales price of the Class A Common Stock on the NYSE was $ 7-7/8. SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY The selected consolidated financial information of the Company for the 1997, 1996, 1995, 1994 and 1993 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 below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The Company's fiscal year ends on the Friday nearest December 31. Consequently, the Company's 1996 Fiscal Year included 53 weeks of operations while the 1993, 1994, 1995 and 1997 Fiscal Years included 52 weeks of operations. 21 STATEMENT OF OPERATIONS DATA: (DOLLARS IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)
Fiscal Year-Ended 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Revenues: Rooms(a) $195,296 $171,206 $148,432 $137,387 $130,754 Food and beverage 86,183 79,580 70,840 65,308 67,748 Meeting room rental and other(b) 20,795 18,061 15,907 13,998 12,360 -------- -------- -------- -------- -------- Total revenues 302,274 268,847 235,179 216,693 210,862 -------- -------- -------- -------- -------- Operating expenses: Direct operating costs and expenses(c) Rooms 50,265 43,610 38,543 34,413 33,189 Food and beverage 62,383 57,956 54,228 49,721 51,772 Other 3,385 2,929 2,521 2,397 2,225 General, administrative, sales and management expenses(d)(e) 85,766 74,646 64,234 57,981 57,097 Repairs and maintenance 12,578 11,528 10,131 9,888 9,624 Depreciation and amortization 34,781 24,034 18,346 13,975 14,153 -------- -------- -------- -------- -------- Total operating expenses 249,158 214,703 188,003 168,375 168,060 -------- -------- -------- -------- -------- Income from operations 53,116 54,144 47,176 48,318 42,802 Interest expense and amortization of deferred financing fees, net 44,325 35,620 28,447 32,932 27,412 -------- -------- -------- -------- -------- Income before minority interest, provision for income taxes and extraordinary item(f) 8,791 18,524 18,729 15,386 15,390 Minority interest in earnings of partnership (6,302) (13,280) (13,427) (274) -- -------- -------- -------- -------- -------- Income before provision for income taxes and extraordinary item 2,489 5,244 5,302 15,112 15,390 Provision for income taxes(g) (75) (105) (107) (41) -- -------- -------- -------- -------- -------- Income before extraordinary item 2,414 5,139 5,195 15,071 15,390 Income before extraordinary item prior to November 23, 1994 allocable to partners -- -- -- (15,004) (15,390) -------- -------- -------- -------- -------- Income before extraordinary item allocable to the Company $ 2,414 $ 5,139 $ 5,195 $ 67 $ -- ======== ======== ======== ======== ======== Basic and diluted earnings per share of common stock (pro forma) before extraordinary item $ 0.38 $ 0.81 $ 0.82 $ 0.48(l) ======== ======== ======== ========
(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) The 1994 and 1995 Fiscal Years do not include a $3.3 million and a $0.3 million, respectively, extraordinary charge related to prepayment fees on early debt retirement in connection with the Note Offerings and Common Stock Offering. (g) After the Common Stock Offering, the Company has been taxed as a C Corporation on its portion of the Partnership's earnings. Prior to the Common Stock Offering, net income does not include any provision (benefit) for income taxes in view of the S Corporation tax status of the general partner prior to the Common Stock Offering and of the Partnership's status as a partnership for income tax purposes. (h) 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. 22
CONTINUED Fiscal Year-Ended - ---------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Other data: EBITDA(h) $ 87,897 $ 78,178 $ 65,522 $ 62,293 $ 56,955 Net cash provided by operating activities 27,769 72,052 44,037 46,107 32,341 Net cash used in investing activities (193,271) (136,296) (78,085) (149,510) (9,259) Net cash provided by (used in) financing activities 161,014 68,916 66,113 104,884 (17,742) Margin and ratio data: EBITDA margin (% of total revenue)(h) 29.1% 29.1% 27.9% 28.8% 27.0% Earnings to fixed charges ratio(i) 0.97x 1.26x 1.39x 1.42x 1.55x Operating data: Owned Hotels: Number of hotels 45 39 37 31 31 Number of rooms 11,108 9,666 9,312 8,054 8,054 Average occupancy 62.9% 64.7% 67.1% 68.5% 68.7% Average daily room rate $ 82.38 $ 76.16 $ 71.68 $ 68.45 $ 65.63 Room revenue per available room (j) $ 51.84 $ 49.25 $ 48.09 $ 46.88 $ 45.11 Increase in yield(k) 5.3% 2.4% 4.8% 3.9% 3.0% Balance sheet data: Total assets $ 816,733 $ 658,072 $542,371 $ 443,044 $297,599 Total debt, including current portion 695,791 531,143 458,094 380,869 342,165 Minority interest of holders of the LP Units 39,399 33,662 23,082 14,820 -- Equity (deficit) 18,508 16,094 10,955 5,852 (71,626) - ----------------------------------------------------------------------------------------------------------------
(i) 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). (j) 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. (k) Increase in yield represents the period-over-period increases in yield. Yield is defined as the room revenue per available room. (l) The 1994 unaudited pro forma net income per share presents the Company's allocable share of pre-tax income (28.31%) after giving effect to (i) the issuance of the Notes and the repayment of the Partnership's then existing mortgage indebtedness with approximately $240.0 million of the $289.7 million total net proceeds from the Note Offering, (ii) the application of approximately $36.1 million of the net proceeds from the Common Stock Offering to the repayment of indebtedness, and (iii) an estimated provision for income taxes that would have been reported had the Company filed federal and state income tax returns as a C Corporation. The estimated tax provision was based on an assumed effective tax rate of 38%. The unaudited pro forma earnings per share information is based upon 6,336,100 shares of common stock outstanding after the Common Stock Offering. 23 MANAGEMENT'S DISCUSSION 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 January 2, 1998 ("1997"), January 3, 1997 ("1996") and December 29, 1995 ("1995"). The consolidated financial statements of the Company present the consolidated assets, liabilities, revenues and expenses of those entities which now comprise the Company as if the Company had been a single entity for all the periods presented. 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, and 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 non-alcoholic 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 1993 through 1997, the Company's total revenues grew at an annual compounded growth rate of 9.4%, from $210.9 million to $302.3 million. Occupancy for the Owned Hotels during that period decreased 5.8 percentage points from 68.7% to 62.9%. However, the Owned Hotels' average room rate increased by 25.5% from $65.63 to $82.38 during that period. Room revenue per available room (RevPAR) increased by 14.9% from $45.11 to $51.84. In general, hotels opened during the period from 1993 to 1997 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 1997, the New Hotels included six hotels opened in 1997 and two hotels opened in 1996. The remainder of the Owned Hotels, excluding the New Hotels, are defined as Mature Hotels. In 1997, the Mature Hotels included 37 hotels opened prior to 1996. 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. Given the current positive trends in the upscale, full-service sector of the hotel industry, the Company continues to develop new hotels, including the seven Scheduled Hotels anticipated to open in 1998 and 1999. Results of Operations of the Company The following table shows selected consolidated operating statistics for the total Owned Hotels:
Fiscal Year-Ended - -------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Average occupancy 62.9% 64.7% 67.1% 68.5% 68.7% Average room rate $ 82.38 $ 76.16 $ 71.68 $ 68.45 $ 65.63 Room revenue per available room $ 51.84 $ 49.25 $ 48.09 $ 46.88 $ 45.11 Available rooms(a) 3,767,387 3,476,279 3,087,700 2,930,893 2,901,516 Number of hotels 45 39 37 31 31 - --------------------------------------------------------------------------------------------------
24 The following table shows selected combined operating statistics for the Mature Hotels (including the six hotels opened in 1995): Fiscal Year-Ended
1997 1996 1995 1994 1993 Average occupancy 63.8% 64.8% 67.1% 68.5% 68.7% Average room rate $ 79.80 $ 76.06 $ 71.68 $ 68.45 $ 65.63 Room revenue per available room $ 50.90 $ 49.29 $ 48.09 $ 46.88 $ 45.11 Available rooms(a) 3,388,896 3,454,899 3,087,700 2,930,893 2,901,516 Number of hotels 37 37 37 31 31
(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 1993, 1994, 1995 and 1997 Fiscal Years each contained 52 weeks or 364 days. The following table shows selected combined operating statistics for the New Hotels: Fiscal Year-Ended
1997 1996 1995 1994 1993 Average occupancy 55.3% 42.2% -- -- -- Average room rate $ 108.97 $100.49 -- -- -- Room revenue per available room $ 60.21 $ 42.42 -- -- -- Available rooms(a) 378,491 21,380 -- -- -- Number of hotels 8 2 -- -- --
The following table shows selected components of the Company's operating income as a percentage of Total Revenues Fiscal Year-Ended
1997 1996 1995 1994 1993 Revenues: Rooms 64.6% 63.7% 63.1% 63.4% 62.0% Food and beverage 28.5 29.6 30.1 30.1 32.1 Meeting room rental and other 6.9 6.7 6.8 6.5 5.9 ------ ------ ------ ------ ------ Total Revenues 100.0 100.0 100.0 100.0 100.0 ------ ------ ------ ------ ------ Operating Expenses: Direct operating costs and expenses Rooms 16.6 16.2 16.4 15.9 15.7 Food and beverage 20.6 21.6 23.0 22.9 24.6 Other 1.1 1.1 1.1 1.1 1.0 General, administrative, sales and management service expenses 28.4 27.8 27.3 26.8 27.1 Repairs and maintenance expenses 4.2 4.3 4.3 4.6 4.6 Depreciation and amortization 11.5 8.9 7.8 6.4 6.7 ------ ------ ------ ------ ------ Total Operating Expenses 82.4 79.9 79.9 77.7 79.7 ------ ------ ------ ------ ------ Income from Operations 17.6% 20.1% 20.1% 22.3% 20.3% ====== ====== ====== ====== ======
25 1997 FISCAL YEAR COMPARED TO 1996 FISCAL YEAR Total revenues increased to $302.3 million in 1997 from $268.8 million in 1996, an increase of $33.5 million or 12.4%. Of total revenues recognized in 1997, 64.6% were revenues from rooms, compared to 63.7% in 1996, continuing the gradual shift over the past several years, as the average room rate continues to increase. Revenues from food and beverage represented 28.5% of total revenues recognized in 1997, compared to 29.6% in 1996, and revenues from meeting room rental and other represented 6.9% of total revenues compared to 6.7% in 1996. Rooms revenues increased to $195.3 million in 1997 from $171.2 million in 1996, an increase of $24.1 million or 14.1% as a result of the addition of six hotels opened in 1997, a full year of operation for the two hotels opened in 1996, and a 4.9% increase in the average room rate of the Mature Hotels. Average room rates of Mature Hotels increased to $79.80 in 1997 from $76.06 in 1996, from increases in pricing schedules. Partially offsetting the increased average room rate in the Mature Hotels was a 1.0 percentage point decline in occupancy to 63.8% in 1997 compared to 64.8% in 1996. This occupancy decline was the result of competition from new limited service hotels in the Mature Hotels' markets. The Mature Hotels' room revenue per available room (RevPAR) improved to $50.90 in 1997 from $49.29 in 1996, an increase of $1.61 or 3.3%. In 1997, the New Hotels included eight hotels which generated a RevPAR of $60.21, up 41.9% from the 1996 RevPAR of $42.42 when only two of the New Hotels were open. 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 $86.2 million in 1997 from $79.6 million in 1996, an increase of $6.6 million or 8.3%. This increase was primarily due to revenues associated with the New Hotels. Meeting room rental and other revenues increased to $20.8 million in 1997 from $18.1 million in 1996, an increase of $2.7 million or 15.1%. This increase was primarily a result of the New Hotels. Direct operating costs and expenses for rooms increased to $50.3 million in 1997 from $43.6 million in 1996, an increase of $6.7 million or 15.3%. As a percentage of rooms revenue, these expenses increased slightly to 25.7% in 1997 from 25.5% in 1996. The increased expense was associated with the New Hotels. These costs generally represent a higher percentage of rooms revenues in newer hotels until these hotels reach stabilized occupancy levels. Direct operating costs and expenses for food and beverage increased to $62.4 million in 1997 from $58.0 million in 1996, an increase of $4.4 million or 7.6%, but decreased slightly as a percentage of food and beverage revenues, to 72.4%, from 72.8% in 1996. The dollar increase was due to costs associated with the higher volume of sales associated with the New Hotels. Other direct operating costs and expenses were $3.4 million in 1997 and $ 2.9 million in 1996, a 15.6% increase. As a percentage of meeting room rental and other revenues, these expenses were 16.3 % in 1997 and 16.2% in 1996. General, administrative, sales and management services expenses increased to $85.8 million in 1997 from $74.6 million in 1996, an increase of $11.2 million or 14.9%. Increases in these expenses were primarily attributable to expenses associated with the New Hotels. Due to a large portion of these expenses being fixed costs in nature, new hotel openings cause these expenses to rise faster than revenues in the first one to two years of operation. As a percentage of total revenues, these expenses increased to 28.4% in 1997 from 27.8% in 1996. Repairs and maintenance expenses increased to $12.6 million in 1997 from $11.5 million in 1996, an increase of $1.1 million or 9.1%, but decreased slightly as a percentage of revenues, to 4.2% from 4.3% in 1996. Depreciation and amortization increased by $10.8 million, or 44.7%, to $34.8 million in 1997 from $24.0 million in 1996. As a percentage of total revenues, these expenses increased to 11.5% in 1997 from 8.9% in 1996. The increase was a direct result of the opening of the eight New Hotels during 1996 and 1997. This amount will continue to increase in the foreseeable future as a result of the Company's continuing development of new hotels. Income from operations decreased to $53.1 million in 1997 from $54.1 million in 1996, a decrease of $1.0 million or 1.9%. As a percentage of total revenues, income from operations was 17.6% in 1997 compared to 20.1% in 1996, due primarily to the non-cash expense of depreciation and amortization associated with the New Hotels. Interest expense and amortization of deferred financing fees, net increased to $44.3 million in 1997 from $35.6 million in 1996, an increase of $8.7 million or 24.4%. The increase was attributable to debt associated with the financing of the New Hotels. Income before minority interest, provision for income taxes and extraordinary item decreased to $8.8 million in 1997 from $18.5 million in 1996, a decrease of $9.7 million or 52.5%. 26 1996 FISCAL YEAR COMPARED TO 1995 FISCAL YEAR Total revenues increased to $268.8 million in 1996 from $235.2 million in 1995, an increase of $33.6 million or 14.3%. Of the total revenues reported in 1996, 63.7% were revenues from rooms, 29.6% were revenues from food and beverage, and 6.7% were revenues from meeting room rental and other, compared with 63.1%, 30.1%, and 6.8%, respectively, during 1995. Rooms revenues increased to $171.2 million in 1996 from $148.4 million in 1995, an increase of $22.8 million or 15.3% as a result of the operation of six hotels which opened in 1995, two hotels which opened in 1996 and the increase in average daily room rate. Average daily room rates of Mature Hotels increased to $74.47 in 1996 from $71.44 in 1995, an increase of $3.03 or 4.2%. During 1996, the Mature Hotels included the 31 hotels opened prior to 1995. The higher average daily room rate was attributable to continued increases in pricing schedules in both the transient and corporate market segments. RevPAR was flat at $49.11 in 1996 and $49.13 in 1995. Food and beverage revenues increased to $79.6 million in 1996 from $70.8 million in 1995, an increase of $8.8 million or 12.3%. This increase was due to revenues associated with the New Hotels and new food franchise operations. During 1996, the New Hotels included two hotels opened in 1996 and six hotels opened in 1995. Meeting room rental and other revenues increased to $18.1 million in 1996 from $15.9 million in 1995, an increase of $2.2 million or 13.5%. This increase was due to the addition of meeting space in the New Hotels. Direct operating costs and expenses for rooms increased to $43.6 million in 1996 from $38.5 million in 1995, an increase of $5.1 million or 13.1%. As a percentage of rooms revenue, these expenses decreased slightly to 25.5% in 1996 from 26.0% in 1995. Direct operating costs and expenses for food and beverage increased to $58.0 million in 1996 from $54.2 million in 1995, an increase of $3.8 million or 6.9%. The increase was due to costs associated with the higher volume of sales. Other direct operating costs and expenses increased to $2.9 million in 1996 from $2.5 million in 1995, an increase of $0.4 million or 16.2%. General, administrative, sales and management services expenses increased to $74.6 million in 1996 from $64.2 million in 1995, an increase of $10.4 million or 16.2%. Increases in these expenses are primarily attributable to expenses associated with the opening of the New Hotels in 1995 and 1996, increases in certain insurance costs and certain other increases in expenses associated with increased room revenues. As a percentage of total revenues, these expenses increased to 27.8% in 1996 from 27.3% in 1995. Repairs and maintenance expenses increased to $11.5 million in 1996 from $10.1 million in 1995, an increase of $1.4 million or 13.8%. Depreciation and amortization increased to $24.0 million in 1996 from $18.3 million in 1995. As a percentage of total revenues, these expenses increased to 8.9% in 1996 from 7.8% in 1995. The increase was a direct result of the increased level of capital expenditures for renovation of existing hotels and construction of the New Hotels. Income from operations increased to $54.1 million in 1996 from $47.2 million in 1995, an increase of $6.9 million or 14.8%. The increase was due to higher profit margins related to the six new hotels opened in 1995. As a percentage of total revenues, income from operations was 20.1% in 1996 and 1995. Interest expense and amortization of deferred financing fees, net increased to $35.6 million in 1996 from $28.5 million in 1995, an increase of $7.1 million or 25.2%. The increase was primarily attributable to new hotel borrowing for new construction offset in part by capitalized interest associated with projects under construction during the year. Income before minority interest, provision for income taxes and extraordinary item decreased to $18.5 million in 1996 from $18.7 million in 1995, a decrease of $0.2 million or 1.1%. The $18.7 million in 1995 does not include a $0.3 million extraordinary charge related to prepayment fees on early debt retirement in connection with the note offering incurred in 1995. 27 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 in the future will obtain mortgage financing secured by construction in progress to provide funding for the hotels it develops. The Company's principle uses of cash are to pay operating expenses, to service debt and to fund capital expenditures, new hotel development and permitted distributions to the partners to fund some of the taxes associated with income allocable to the partners. At January 2, 1998, the Company had $42.0 million of cash and equivalents and also had $12.7 million of marketable securities, compared to $46.4 million in cash and equivalents and $2.4 million of marketable securities at the end of 1996. Such amounts are generally available for development of new hotels and other working capital requirements of the Company. Net cash provided by operating activities decreased significantly, to $27.8 million at the end of 1997 from $72.1 million at the end of 1996, a decrease of $44.3 million or 61.5%. This decrease was primarily due to the timing of payment of construction related accounts payable associated with hotels opened during 1997. The Company incurred net capital expenditures of $179.4 million and $155.6 million, respectively, for 1997 and 1996. Capital expenditures typically include capital improvements on existing hotel properties and expenditures for development of new hotels. Capital expenditures in 1997 included $160.3 million for new hotel development and $19.1 million for existing hotels. During 1996, capital expenditures for new hotel development and existing hotels were $129.1 million and $26.5 million, respectively. During 1998, the Company expects capital expenditures to total $158.5 million, representing approximately $137.7 million for capital improvements for continued new hotel development and $20.8 million for capital improvements on existing hotels. At the end of 1997, total debt was $695.8 million compared with $531.1 million in 1996. The increase is attributable to the six hotels opened during 1997 as well as six Scheduled Hotels under construction at the end of 1997. Current portion due of long-term debt was $61.5 million at the end of 1997, compared with $12.4 million at the end of 1996. The increase is primarily attributable to two loans totaling $43.5 million. The Company will exercise its option to extend one loan in the amount of $23.5 million and plans to either extend or refinance a second loan in the amount of $20 million. In February 1998, the Company completed the sale of six hotels for approximately $40 million, consisting of assumption of debt and other obligations of approximately $5.1 million and cash of approximately $34.9 million. Five of the six hotels sold served as collateral for the 1994 and 1995 Mortgage Notes. The Company intends to provide replacement collateral for these mortgage notes and, therefore, the net proceeds realized from the sale will generally not be available for new hotel development. The Company estimates that building, pre-opening and other costs of the seven Scheduled Hotels will require aggregate funding of $140.7 million from the Company (net of $77.6 million included in construction in progress at year end). The Company has obtained loans and commitments of $122.8 million ($36.3 million of which had been drawn at year end) on five of the Scheduled Hotels and expects the remaining capital requirements to be funded by cash, cash flow from operations, refinancing of certain existing hotels and loans on two unencumbered Scheduled Hotels. In addition to the capital expenditures for the Scheduled Hotels, the Company is at various stages in evaluating other new hotel development. Capital requirements for the hotels under development are expected to be provided by (i) construction loans; (ii) refinancing of certain existing hotels; (iii) contributions from third parties; and (iv) cash flow from operations. The Company expects to fund development of new hotels through limited partnerships in which the Company will be the general partner and a wholly-owned corporate subsidiary of the Company will be the limited partner. As permitted by the indenture relating to the Notes (the "Note Indenture"), each of these entities will be an "Unrestricted Subsidiary" for purposes thereof, and, accordingly, the ability of the Company to fund these entities is subject to certain limitations contained in the Note Indenture. All of the indebtedness of this entity will be non-recourse to the Company. The Company believes that funding permitted under the Note Indenture will be sufficient to meet its current hotel development plans. Based upon 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 1998 capital requirements for the currently planned projects and normal recurring capital improvement projects. The Company distributed $0.6 million in 1997, and $2.7 million in 1996 to its partners. Distributions by the Company to its partners must be made in accordance with the provisions of the Note Indentures. 28 The Company has reviewed the effects of the upcoming Year 2000 on its computer systems and operations, as well as on those of the Owned Hotels. the company does not anticipate any material impact on its corporate operation, given the current systems used are believed to be Year 2000 compliant. Systems for several of the Owned Hotels are also believed to be Year 2000 compliant. The Company has not yet determined the effect on 16 of the Owned Hotels operated as Holiday Inn franchises. The franchisor has indicated that it will announce its proposal for addressing Year 2000 compliance in May 1998. For all other Owned Hotels, the Company has included amounts in its capital expenditures budget for software upgrades and for other systems initiatives. These planned upgrades and modifications are intended to address Year 2000 issues. Planned costs for system upgrades and modifications currently approximate $0.8 million to $1.0 million. Virtually all such upgrades were anticipated by the company and would have been implemented within the next few years even absent a Year 2000 issue. 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 the 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. 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 January 2, 1998 and January 3, 1997 and the related consolidated statements of income, changes in minority interest and stockholders' equity and cash flows for each of the three fiscal years ended January 2, 1998, January 3, 1997 and December 29, 1995. These financial statements are the responsibility of the Company's 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 January 2, 1998 and January 3, 1997 and the results of their operations and their cash flows for each of the three fiscal years ended January 2, 1998, January 3, 1997 and December 29, 1995 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Cincinnati, Ohio, February 9, 1998 29 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED BALANCE SHEETS (000'S OMITTED, EXCEPT SHARE DATA)
ASSETS Fiscal Year-End - ------------------------------------------------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS (Restricted cash of $1,235 and $5,191 in 1997 and 1996, respectively) (Notes 2 and 5) $ 41,961 $ 46,449 MARKETABLE SECURITIES (Notes 2 and 5) 12,742 2,355 RECEIVABLES: Trade, less allowance for doubtful accounts of $188 and $163 in 1997 and 1996, respectively 7,652 5,790 Management fees (Note 3) 50 45 Construction reimbursements, shareholder and other (Note 3) 3,739 780 INVENTORIES 1,206 1,019 PREPAID EXPENSES AND OTHER 1,386 1,928 --------- --------- Total current assets 68,736 58,366 --------- --------- PROPERTY AND EQUIPMENT, at cost (Notes 2, 5 and 6): Land and improvements 40,511 29,712 Buildings and improvements 527,856 433,059 Furniture, fixtures and equipment 197,177 160,198 Construction in progress 78,946 120,525 --------- --------- 844,490 743,494 Less- Accumulated depreciation and amortization (166,125) (174,899) --------- --------- 678,365 568,595 Property and equipment available for sale, net (Note 10) 38,791 -- --------- --------- 717,156 568,595 --------- --------- DEFERRED FINANCING COSTS, FRANCHISE FEES, AND OTHER, net (Notes 2 and 5) 30,841 31,111 --------- --------- $ 816,733 $ 658,072 ========= ========= - -------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 30 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED BALANCE SHEETS (000'S OMITTED, EXCEPT SHARE DATA)
LIABILITIES AND EQUITY Fiscal Year-End - ------------------------------------------------------------------------------------------------------ 1997 1996 - ------------------------------------------------------------------------------------------------------ LIABILITIES: Current portion of long-term debt (Note 5) $ 61,517 $ 12,444 Accounts payable, including construction payables of approximately $3,391 and $17,721, respectively 11,232 29,977 Accrued expenses- Payroll and related benefits 5,529 4,611 Sales and property taxes 8,676 7,069 Insurance (Notes 2 and 3) 11,242 9,511 Interest 12,603 12,634 Utilities, franchise fees and other 5,852 6,347 -------- -------- Total current liabilities 116,651 82,593 Long-term debt (Note 5) 634,274 518,699 Other obligations and deferred revenue (Note 2) 7,901 7,024 -------- -------- Total liabilities 758,826 608,316 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 6) MINORITY INTEREST OF HOLDERS OF LIMITED PARTNER UNITS (Note 1) 39,399 33,662 STOCKHOLDERS' EQUITY (Note 1): Preferred stock, $.01 par value, 2,000,000 shares authorized, none outstanding -- -- Class A common stock, $.01 par value, 40,000,000 shares authorized, 6,042,000 shares issued and outstanding 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 (77,928) (80,342) -------- -------- Total equity 18,508 16,094 -------- -------- $816,733 $658,072 ======== ======== - ------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 31 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED STATEMENTS OF INCOME (000'S OMITTED, EXCEPT SHARE DATA)
Fiscal Year-Ended - ------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ REVENUES: Rooms $195,296 $171,206 $148,432 Food and beverage 86,183 79,580 70,840 Meeting room rental and other 20,795 18,061 15,907 -------- -------- -------- Total revenues 302,274 268,847 235,179 -------- -------- -------- OPERATING EXPENSES (Notes 3, 4 and 6): Direct operating costs and expenses- Rooms 50,265 43,610 38,543 Food and beverage 62,383 57,956 54,228 Other 3,385 2,929 2,521 General, administrative, sales and management service expenses 85,766 74,646 64,234 Repairs and maintenance 12,578 11,528 10,131 Depreciation and amortization 34,781 24,034 18,346 -------- -------- -------- Total operating expenses 249,158 214,703 188,003 -------- -------- -------- INCOME FROM OPERATIONS (Note 10) 53,116 54,144 47,176 OTHER EXPENSE: Interest expense and amortization of deferred financing fees, net of $1,279, $2,103 and $4,044 of interest income in 1997, 1996 and 1995, respectively (Note 2(e)) 44,325 35,620 28,447 -------- -------- -------- INCOME BEFORE MINORITY INTEREST, PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM 8,791 18,524 18,729 Minority interest in earnings of partnership (Note 1) (6,302) (13,280) (13,427) -------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM 2,489 5,244 5,302 Provision for income taxes (Note 2(j)) (75) (105) (107) -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 2,414 5,139 5,195 Extraordinary item; cost of early extinguishment of debt, net of applicable tax benefit (Note 8) -- -- (92) -------- -------- -------- NET INCOME (Note 1) $ 2,414 $ 5,139 $ 5,103 ======== ======== ======== BASIC AND DILUTED EARNINGS PER SHARE (Note 2(o)): Earnings before extraordinary item $ .38 $ .81 $ .82 Extraordinary item -- -- (.01) -------- -------- -------- Earnings allocable to the Company $ .38 $ .81 $ .81 ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 32 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED STATEMENTS OF CHANGES IN MINORITY INTEREST AND STOCKHOLDERSO EQUITY (000'S OMITTED]
Stockholders' Equity - ------------------------------------------------------------------------------------------------------------ Company Class A Class B Retained Minority Common Common Paid-In Deficit after Interest Stock Stock Capital Reorganization Total - ------------------------------------------------------------------------------------------------------------ BALANCE, Year-End 1994 $14,820 $60 $3 $96,373 $(90,584) $ 5,852 Distributions (4,932) -- -- -- -- -- Net income allocable to the Company -- -- -- -- 5,103 5,103 Minority interest in earnings of the partnership, after extraordinary item of $233 13,194 -- -- -- -- -- ------- --- -- ------- -------- ------- BALANCE, Year-End 1995 23,082 60 3 96,373 (85,481) 10,955 Distributions (2,700) -- -- -- -- -- Net income allocable to the Company -- -- -- -- 5,139 5,139 Minority interest in earnings of the partnership 13,280 -- -- -- -- -- ------- --- -- ------- -------- ------- BALANCE, Year-End 1996 33,662 60 3 96,373 (80,342) 16,094 Distributions (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 ======= === == ======= ======== =======
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 33 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000'S OMITTED)
Fiscal Year-Ended - ---------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,414 $ 5,139 $ 5,103 Adjustments to reconcile net income to cash provided by operating activities- Minority interest in earnings of partnership 6,302 13,280 13,427 Depreciation, amortization and loan cost amortization 37,662 26,414 19,956 Extraordinary item, net of tax benefit -- -- 92 --------- --------- --------- 46,378 44,833 38,578 Changes in certain assets and liabilities- Receivables (4,826) 999 (3,003) Inventories (187) 91 (137) Prepaid expenses and other 542 (804) (138) Accounts payable (18,745) 21,595 (236) Accrued expenses 3,730 3,894 4,375 Other obligations and deferred revenue 877 1,444 4,598 --------- --------- --------- Net cash provided by operating activities 27,769 72,052 44,037 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (179,385) (155,579) (132,419) Franchise fees and other (3,499) (4,936) (5,755) (Purchase) sale of marketable securities, net (10,387) 24,219 60,089 --------- --------- --------- Net cash used in investing activities (193,271) (136,296) (78,085) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan financing fees and debt offering costs (3,069) (1,433) (6,180) Proceeds from borrowings 186,684 76,239 112,296 Payments of notes payable to affiliates -- -- (547) Repayments of debt (22,036) (3,190) (34,524) Distributions (565) (2,700) (4,932) --------- --------- --------- Net cash provided by financing activities 161,014 68,916 66,113 --------- --------- --------- Increase (decrease) in cash and equivalents (4,488) 4,672 32,065 CASH AND EQUIVALENTS, beginning of period 46,449 41,777 9,712 --------- --------- --------- CASH AND EQUIVALENTS, end of period $ 41,961 $ 46,449 $ 41,777 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID FOR INTEREST, net of amounts capitalized $ 43,399 $ 35,441 $ 29,035 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 34 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000'S 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 1997, 1996 and 1995, the Company had forty-five, thirty-nine and thirty-seven, respectively, hotels in operation of which thirty-five in 1997 and thirty- two in 1996 and 1995 operate under the Holiday Inn and Embassy Suites trade names. The Company's hotels are located in twenty 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 allocable to the Company reported in the accompanying consolidated statements of income includes the Company's approximate 28% share of all JQHLP earnings. 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 pro rata 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 (Note 5). 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. Additional Capital Contributions; In the event proceeds from the sale of the twenty hotel properties 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 eight hotel properties 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 eleven hotel properties contributed by JQH concurrent with the public equity offering (Note 8), JQH is obligated to contribute up to $50 million in the event proceeds from the sale of these hotel properties 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. 35 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 9), 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 1998. These securities are valued at current market value, which approximates cost. Realized gains and losses in 1997 and 1996, 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 ten to twenty years which approximates the terms of the respective agreements. Costs of obtaining financing are capitalized and amortized over the respective terms of the debt. Costs directly related to commencing a hotel's operations are deferred until the hotel has opened. The preopening expense is amortized over one year using the straight-line method. Unamortized preopening costs were approximately $3,825 and $1,239 as of fiscal year-end 1997 and 1996, respectively (see Note 2(q)). The components of deferred financing costs, franchise fees, and other are summarized as follows:
Fiscal Year-End - ------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------- Deferred financing costs $24,025 $20,956 Franchise fees 4,716 4,877 Less-Accumulated amortization (9,466) (7,212) ------- ------- 19,275 18,621 Restricted cash deposit, interest bearing, related to insurance coverages (Note 3) -- 4,934 Deposits 7,397 5,986 Preopening expenses and other 4,169 1,570 ------- ------- $30,841 $31,111 ======= =======
In October 1997, the partnership 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. The letter of credit expires in October 1998. (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 5-10 - --------------------------------------------------------------
36 Construction in progress includes primarily land, development and construction costs of certain hotel developments. Costs associated with hotel development construction in progress approximated $75 million in 1997 and $120 million in 1996, 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 impairment exists at January 2, 1998. Interest costs, construction overhead and certain other carrying costs are capitalized during the period hotel properties are under construction. Interest costs capitalized were $10,259, $7,162 and $5,270 for the fiscal years ended 1997, 1996 and 1995, 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 1997 consolidated financial statements include the land costs for thirty-seven of the operating hotel properties. Land for six of the remaining eight 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 $464, $450 and $288 for the fiscal years ended 1997, 1996 and 1995, respectively. (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 costs incurred for a hotel prior to its opening are deferred and charged to expense in the period the hotel commences operations. Advertising expense for 1997, 1996 and 1995 was approximately $21,405, $17,373 and $16,206, respectively, of which approximately $1,296, $291 and $1,038, respectively, pertained to preopening advertising expenses of the hotels which opened in these respective years. (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 $66, $54 and $52 for the fiscal years ended 1997, 1996 and 1995, 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 $381 and $293 in 1997 and 1996, respectively. The Company does not offer any other post-employment or post-retirement benefits to its employees. (i) Self-Insurance--The Company is self-insured for certain levels of general liability and workers' compensation coverage. Estimated costs of 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 1997, 1996 and 1995 is summarized as follows:
- ------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------- Currently payable $75 $105 $107 Deferred -- -- -- --- ---- ---- Provision for income taxes $75 $105 $107 === ==== ====
37 A reconciliation between the statutory federal income tax rate and the effective tax rate is summarized as follows:
1997 1996 1995 - -------------------------------------------------------------------------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE - -------------------------------------------------------------------------------- Provision for income taxes at the federal statutory rate $ 846 34% $ 1,783 34% $ 1,803 34% Tax benefit allocable to general partner (846) (34) (1,783) (34) (1,803) (34) Provision for state taxes 75 3 105 2 107 2 ----- --- ------- --- ------- --- Provision for income taxes $ 75 3% $ 105 2% $ 107 2% ===== === ======= === ======= ===
At January 2, 1998, January 3, 1997 and December 29, 1995, the net deferred tax liability consisted of the following:
- ------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------- Deferred tax assets: Estimated allocated tax basis in excess of the Company's proportionate share of the book value of JQHLP's net assets $ 7,400 $ 9,200 $ 11,000 Deferred tax liabilities (1) (1) (1) ------- ------- -------- 7,399 9,199 10,999 Valuation allowance (7,400) (9,200) (11,000) ------- ------- -------- Net deferred tax liability $ (1) $ (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 1997, 53 weeks in 1996 and 52 weeks in 1995. The periods ended in the accompanying consolidated financial statements are summarized as follows:
------------------------------------------------------------- Year Fiscal Year-End ------------------------------------------------------------- 1997 January 2, 1998 1996 January 3, 1997 1995 December 29, 1995 -------------------------------------------------------------
38 (n) Reclassifications--Certain reclassifications have been reflected in 1996 and 1995 to conform with the current period presentation. (o) Earnings 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 per share are computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings 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 750,000 shares of common stock at a price of $16.50 per share were outstanding during 1997 but 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. Since there are no dilutive securities, basic and diluted earnings per share are identical thus a reconciliation of the numerator and denominator is not necessary. SFAS 128 requires the Company to restate reported earnings per share for all periods presented. This accounting change had no effect on previously reported earnings per share. (p) New Accounting Pronouncements--In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which requires comprehensive income and the associated income tax expense or benefit be reported in a financial statement that is displayed with the same prominence as other financial statements with an aggregate amount of comprehensive income reported in that same financial statement. "Other Comprehensive Income" refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but not in net income. The Company intends to adopt this statement in the first quarter of fiscal 1998 and does not anticipate such adoption to have any significant impact on the Company's reported consolidated financial position, results of operations, cash flows or related disclosures. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS No. 131), which requires disclosures for each segment in which the chief operating decision maker organizes these segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any manner in which management segregates a company. This statement, which the Company intends to adopt in fiscal 1998, expands or modifies disclosures and, accordingly, will have no impact on the Company's reported consolidated financial position, results of operations or cash flows. (q) Proposed Accounting Pronouncements--In April 1997, the American Institute of Certified Public Accountants released a proposed Statement of Position (SOP) - "Reporting on the Costs of Start-Up Activities." The proposed SOP, which is expected to be finalized and issued in 1998, would require costs of start-up activities, including preopening expenses, to be expensed as incurred. The Company's current practice is to defer these expenses until a hotel has commenced operations, at which time the costs, other than advertising costs which are expensed upon opening, are amortized over a one-year period. Included in the accompanying 1997 consolidated balance sheet is approximately $3,825 of unamortized preopening expenses which would have been expensed had this pronouncement been effective as of January 2, 1998. (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 four properties at January 2, 1998. A management fee of approximately 3% of gross revenues (as defined) is paid to the Company by these hotels which aggregated approximately $643, $717 and $694 for the fiscal years ended 1997, 1996, and 1995, 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 $1,411, $1,228 and $1,181 for the fiscal years ended 1997, 1996 and 1995, respectively. In 1995, JQH negotiated a new contract with WHI to continue to provide accounting and administrative services through June 1999. Charges for these services provided by WHI will approximate $32 per year for each hotel property for the duration of the agreement. 39 (c) Insurance Coverage--Umbrella, property, auto, commercial liability and workers' compensation insurance are 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 $6,196, $6,265 and $5,764 for the fiscal years ended 1997, 1996 and 1995, respectively. (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 $131, $150, and $180 for the fiscal years ended 1997, 1996 and 1995, respectively. Management considers these allocations to be reasonable. (e) Transactions with Stockholders and Directors--At fiscal year-end, there were certain prepayments to a stockholder associated with the Company's estimated 1998 and 1997 taxable income, which approximated $2,031 and $315, respectively, and are included as a component of construction reimbursements, shareholder and other receivables. The Company reimburses JQH for development costs incurred on behalf of the Company, at approximate cost. These costs amounted to approximately $7,251 (including debt assumed of $4,728) and $4,621 in 1997 and 1996, respectively. In addition to actual costs incurred, the 1997 reimbursement includes a return on capital employed by JQH of approximately $120, calculated based on the Company's approximate incremental borrowing rate. During 1996, the Company entered into an agreement with a director relating to certain financial advisory services. The Company has recognized approximately $180 and $188 in expense for the fiscal years ended 1997 and 1996, respectively, under this agreement. (f) Summary of Related Party Expenses--The following summarizes expenses reported as a result of activities with related parties:
- ------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------- Expenses included within general, administrative, sales and management service expenses: Accounting and administrative $1,411 $1,228 $1,181 Rental expenses (Note 6) 465 520 420 Financial advisory services from a director 180 188 -- ------ ------ ------ $2,056 $1,936 $1,601 ====== ====== ====== Allocated insurance expense from the pooled coverage included within various operating categories $6,196 $6,265 $5,764 ====== ====== ======
(4) Franchise Agreements- As of year-end 1997 and 1996, forty-one of the forty-five and thirty-six of the thirty-nine, respectively, operating hotel properties included in the accompanying consolidated balance sheets have franchise agreements with a national hotel chain which require each hotel to remit to the franchisor monthly fees equal to approximately four percent of gross room revenues, as defined. Franchise fees expensed under these contracts were $7,165, $6,250 and $5,534 for the fiscal years ended 1997, 1996 and 1995, 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 room revenues, as defined. The amount of expense related to these fees included in the consolidated statements of income as a component of sales expense was approximately $6,497, $5,493 and $4,666 for the fiscal years ended 1997, 1996 and 1995, respectively. 40 (5) Long-Term Debt- The components of long-term debt are summarized as follows:
Fiscal Year-End 1997 1996 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 twenty hotel properties and additional capital contributions of up to $150 million by JQH and an entity under his control. (Note 1(b)) $300,000 $300,000 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 six hotel properties and a second mortgage lien on two hotel properties and additional capital contributions of up to $45 million by JQH. (Note 1(b)) 90,000 90,000 Development Bonds, variable interest rate approximates 85% of the bond equivalent yield of thirteen week U.S. Treasury bills (not to exceed 12%) and fixed rates ranging from 7.125% to 9.00%, payable in scheduled installments through April, 2024, certain of the obligations are subject to optional prepayments by the bondholders, secured by certain hotel facilities, fixtures, assignment of rents, a letter of credit and, with respect to approximately $16,102 of development bonds, a personal guarantee of JQH. 36,063 36,873 Mortgage notes payable to banks, insurance companies and a state retirement plan, variable interest rates at prime to prime plus 1% with certain instruments subject to a ceiling rate and a floor rate, fixed rates ranging from 8% to 11%, payable in scheduled installments through April, 2027, secured by certain hotel facilities, fixtures, assignment of rents, certain other real property controlled by JQH and, with respect to approximately $252,909 of mortgage notes, a personal guarantee of JQH. 261,071 93,874 Other notes payable, various variable interest rates and fixed rates ranging from 6.5% to 8.1%, payable in scheduled installments through July, 2002, secured by certain hotel improvements, furniture, fixtures and related equipment and, with respect to approximately $2,100 of notes, a personal guarantee of JQH. 8,657 10,396 -------- -------- 695,791 531,143 Less- current portion (61,517) (12,444) -------- -------- $634,274 $518,699 ======== ========
41 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. Scheduled maturities of long-term debt are summarized as follows:
Year Ending Year-End 1997 1998(A) $ 61,517 1999 32,968 2000 9,780 2001 13,893 2002 38,533 Thereafter 539,100 --------- $ 695,791 =========
(A) Maturities of long-term debt of approximately $5.1 million in 1998 are scheduled to be amortized over periods extending subsequent to 2002. (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 $1,819, $1,629 and $1,076 for the fiscal years ended 1997, 1996 and 1995, respectively, which has been included in general and management service expenses. Included in the accompanying consolidated financial statements are the operating results of trade centers located in Billings, Montana; Joplin, Missouri and Portland, Oregon. Each of the trade centers are owned by JQH. The lease agreements for the Billings and Joplin trade centers stipulate nominal rentals for each of the fiscal years ended 1997, 1996, and 1995, 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 $231 through December 1998. 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 $465, $520 and $420 for the fiscal years ended 1997, 1996 and 1995, respectively. The minimum annual rental commitments for these noncancelable operating leases at January 2, 1998 are as follows:
Fiscal Year Ending JQH Other Total 1998 $ 791 $ 1,489 $ 2,280 1999 570 1,243 1,813 2000 570 970 1,540 2001 570 683 1,253 2002 570 604 1,174 Thereafter 11,245 41,903 53,148 ------- ------- ------- $14,316 $46,892 $61,208 ======= ======= =======
42 (b) Hotel Development--In 1998 and 1999, the Company plans to complete construction and open seven new hotels. The total estimated aggregate development and construction costs for these hotels are expected to exceed $218 million. (c) 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, or results of operation or its cash flows. (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 notes for which fair market value was approximately $404 million and $387 million at 1997 and 1996, respectively. The fair value of the first mortgage note issues is estimated by obtaining quotes from brokers. (8) Public Offerings- In addition to the completion of the sale of equity securities as more fully described in Note 1, JQHLP completed the sale of $90 million of first mortgage notes in 1995. Proceeds of the offering were primarily used for retirement of then existing mortgage debt, transaction costs associated with the debt offering and to provide funding for new hotel development. In conjunction with the retirement or refinancing of its then existing mortgage debt, JQHLP incurred approximately $0.3 million of prepayment charges in 1995. These prepayment charges have been reflected in the accompanying 1995 consolidated statement of income as an extraordinary item. (9) 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 are at fair market value as of the date of the grant (approximately $16.50 per share) and are generally exercisable over periods not exceeding ten years. See Note 1(b) Additional General Partner Interest. A summary of the changes in options outstanding during 1997 and 1996 is as follows:
Number Option Price of Shares Per Share Outstanding at December 29, 1995 750,000 $16.50 Granted -- -- Exercised -- -- ------- ------ Outstanding at January 3, 1997 750,000 $16.50 ------- ------ Granted -- -- Exercised -- -- ------- ------ Outstanding at January 2, 1998 750,000 $16.50 ======= ====== Exercisable at January 2, 1998 562,500 $16.50 ======= ======
43 The Company accounts for these option plans 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 to disclose what compensation costs would have been for these option plans had the accounting ascribed by SFAS No. 123 been adopted. Given that disclosures under SFAS No. 123 are not applicable to options granted prior to January 1, 1995 and given the Company has granted no options in 1997, 1996 or 1995, there is no additional pro forma compensation expense to be disclosed. (10) Subsequent Event- Effective February 6, 1998, the Company completed the sale of six hotels to an unrelated party for $40 million, which approximates the aggregate net book value of the hotels. 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 must provide replacement collateral of equivalent value or apply the net proceeds from the sale to amounts outstanding. The Company intends to provide replacement collateral in accordance with the indenture provisions. Summary unaudited operating results for the six hotels for each of the three years ended 1997, 1996 and 1995 are as follows:
1997 1996 1995 Revenues $27,485 $28,947 $29,717 ------- ------- ------- Income from operations, including depreciation and amortization of $2,447, $2,418 and $2,358, respectively $ 3,590 $ 3,373 $ 3,287 ======= ======= =======
(11) Quarterly Financial Data (Unaudited)-
(Thousands, except per share amounts) Quarter First Second Third Fourth 1997 Total revenues $70,542 $76,219 $78,864 $76,649 Income from operations 13,774 16,145 13,793 9,404 Net income (loss) allocable to the Company 1,187 1,643 557 (973) Basic and diluted earnings (loss) per share $ 0.19 $ 0.26 $ 0.09 $ (0.15) 1996 Total revenues $64,620 $68,343 $67,329 $68,555 Income from operations 11,422 14,846 14,902 12,974 Net income allocable to the Company 599 1,638 1,764 1,138 Basic and diluted earnings per share $ 0.09 $ 0.26 $ 0.28 $ 0.18
44 BOARD OF DIRECTORS John Q. Hammons Chairman & Chief Executive Officer David B. Jones President & Chief Operating Officer Mel J. Volmert Executive Vice President, Chief Financial Officer & Treasurer Jacqueline A. Dowdy Secretary Daniel L. Earley President, Clermont Savings Bank William J. Hart Partner, Husch & Eppenberger John E. Lopez-Ona President, Anvil Capital Robert Trent Jones, Jr. President, Robert Trent Jones II International James F. Moore Chairman, Champion Products, Inc. COMMITTEES OF THE BOARD Audit Committee Daniel L. Earley-Chairman James F. Moore Jacqueline A. Dowdy Compensation and Stock Option Committee John Q. Hammons-Chairman William J. Hart Robert Trent Jones, Jr. Finance Committee John E. Lopez-Ona-Chairman Daniel L. Earley William J. Hart OFFICERS John Q. Hammons Chairman & Chief Executive Officer David B. Jones President & Chief Operating Officer Mel J. Volmert Executive Vice President, Chief Financial Officer & Treasurer Jacqueline A. Dowdy Secretary Glenn R. Malone Senior Vice President Financial Planning & Corporate Development Steven E. Minton, AIA Senior Vice President Architecture Pat A. Shivers Senior Vice President Administration & Control John D. Fulton Vice President Design & Construction James Miller Vice President Sales & Marketing Debra Mallonee Shantz Corporate Counsel Lawrence A. Welch Vice President Food & Beverage Robert Fugazi Regional Vice President Southern Region Houston, Texas Lonnie Funk Regional Vice President Midwest Region Kansas City, Missouri William Mead Regional Vice President Eastern Region Greensboro, North Carolina Robert Niehaus Regional Vice President Western Region Fresno, California Bill Parker Regional Vice President Rocky Mountain Region Springfield, Missouri 45 JOHN Q. HAMMONS HOTELS LIST Embassy Suites Raleigh/Durham, North Carolina Charleston, West Virginia Columbia, South Carolina Greenville, South Carolina Greensboro, North Carolina Tampa, Florida (Opened 1998) Des Moines, Iowa Kansas City Airport, Missouri Omaha (Old Market), Nebraska Little Rock, Arkansas Montgomery, Alabama Monterey, California Portland, Oregon (Opens 1998) Hampton Inn & Suites Springdale, Arkansas Homewood Suites Greensboro, North Carolina Kansas City Airport, Missouri Resorts Chateau on the Lake, Branson, Missouri World Golf Resort, St. Augustine, Florida (Opens 1998) Independents Collins Plaza, Cedar Rapids, Iowa University Plaza, Bowling Green, Kentucky Capitol Plaza, Jefferson City, Missouri Capitol Plaza, Topeka, Kansas (Opens 1998) Radisson Quad-City Plaza, Davenport, Iowa Hobby Airport, Houston, Texas Marriott Tucson, Arizona West Madison, Wisconsin Crowne Plaza Pyramid, Albuquerque, New Mexico Holiday Inn University Park, West Des Moines, Iowa Rapid City, South Dakota* City Centre, Sioux Falls, South Dakota* Beaumont, Texas Springdale, Arkansas Bakersfield, California Bay Bridge, California Fresno Centre Plaza, California Portland Airport, Oregon Reno, Nevada Capitol Plaza, Sacramento, California Tucson Airport, Arizona Denver International Airport, Colorado Denver Northglenn, Colorado Ft. Collins, Colorado Joliet, Illinois Joplin, Missouri Springfield North, Missouri Springfield University Plaza, Missouri* Days Inn Springfield I-44, Missouri* CORPORATE ADDRESS John Q. Hammons Hotels, Inc. 300 John Q. Hammons Parkway Suite 900 Springfield, MO 65806 Telephone: (417) 864-6573 INDEPENDENT AUDITORS Arthur Andersen L.L.P. Cincinnati, Ohio TRANSFER AGENT First Union National Bank of North Carolina Shareholder Services Group 230 South Tryon Street Charlotte, North Carolina 28288-1153 Toll Free (800) 829-8432 Local (704) 374-6531 Fax (704) 383-8030 10-K AVAILABILITY The Company will furnish to any shareholder, without charge, a copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended January 2, 1998 upon written request to: Investor Relations John Q. Hammons Hotels, Inc. 300 John Q. Hammons Parkway Suite 900 Springfield, MO 65806 [LOGO] Design: Groves Design Company *Managed Hotels 46 EX-23.1 4 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed registration Statements No.'s 33-84570 and 333-1276. Cincinnati, Ohio April 2, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JANUARY 2, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-02-1998 JAN-04-1997 JAN-02-1998 41,961 12,742 11,629 188 1,206 68,736 844,490 166,125 816,733 116,651 634,274 0 0 63 18,445 816,733 0 302,274 0 116,033 133,125 0 44,325 2,489 75 2,414 0 0 0 2,414 .38 .38
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