-----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, LwDq3dUJdL4EWibdyDNHFeWVpJ3tVdJW/XrMNCrUA9alqpATFoRkq/54judNX6Th lN/KKvo73h9jsXSH8hcyLQ== 0000950131-99-002008.txt : 19990402 0000950131-99-002008.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950131-99-002008 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990101 FILED AS OF DATE: 19990331 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: 99583404 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 1, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to __________________ Commission File Number 1-13486 JOHN Q. HAMMONS HOTELS, INC. (Exact Name of Registrant as specified in its charter) Delaware 43-16950593 (State 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 filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the 5,764,725 shares of Class A Common Stock held by non-affiliates of the Registrant was approximately $26,301,558 based on the closing price on the New York Stock Exchange for such stock on March 19, 1999. Number of shares of the Registrant's Class A Common Stock outstanding as of March 19, 1999: 6,042,000. Documents Incorporated by Reference Portions of the annual report to shareholders for the year ended January 1, 1999 are incorporated by reference into Part II. Portions of the proxy statement for the annual shareholders meeting to be held on May 4, 1999 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 42 hotels located in 20 states, containing 10,293 guest rooms or suites (the "Owned Hotels"), including four new hotels opened in 1998. The Company also manages five additional hotels located in two states, containing 1,176 guest rooms (the "Managed Hotels"). On January 1, 1999, the Company also owned six upscale hotels at various stages of development, which are scheduled to open during 1999 and 2000 (the "Scheduled Hotels"). The Company's existing 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 has developed new hotels over the past several years). The Company's strategy is to increase cash flow and thereby enhance shareholder value primarily through (i) capitalizing on positive operating fundamentals in the upscale full-service sector of its markets and improving the operating results of its newer hotels, (ii) converting the franchises of its existing hotels to franchise brands that are considered to be more upscale, and (iii) selling certain mature assets and re-investing the net proceeds. The JQH Hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups and conventions, as well as leisure travelers. Each of the JQH Hotels is individually designed by the Company, and most contain an impressive 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 18 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. The 13 Embassy Suites JQH Hotels are all-suite hotels which appeal to the traveler needing or desiring greater space and specialized services. The JQH Hotels also include six non-franchise hotels, two Radissons, one Hampton Inn & Suites, two Marriotts, two Homewood Suites, one Crowne Plaza, one Sheraton and one Days Inn. Four of the non-franchise hotels have the word "Plaza" in their names, and the other two non-franchise hotels are resort hotels. 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 and two District Directors 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 announced on September 11, 1998 that it was ceasing new development activity, except for the hotels currently under construction. The following table sets forth information as to the Scheduled Hotels:
Number of Stage of Development/ Location Franchise/Name Rooms/Suites Description Estimated Completion Date -------- -------------- ------------ ----------- ------------------------- Mesquite, TX Hampton Inn & Suites 160 Convention Center Construction commenced; 2nd Quarter 1999 Coral Springs, FL Radisson Plaza 224 Atrium; Convention Construction commenced; Center 2nd Quarter 1999 Dallas/Ft. Worth Airport, TX Embassy Suites 330 Atrium Construction commenced; 3rd Quarter 1999 Charlotte, NC Renaissance Suites 275 Atrium Construction commenced; 4th Quarter 1999 Oklahoma City, OK Renaissance 312 Atrium; Convention Construction commenced; Center 1st Quarter 2000 Charleston, SC Embassy Suites 275 Atrium Construction commenced; 1st Quarter 2000
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. On February 6, 1998, the Company completed the sale of six hotels to an unrelated party for $39.4 million, resulting in a gain of approximately $0.2 million. The net book value of the hotels' property and equipment at the time of the sale was approximately $38.6 million. On December 31, 1998, the Company completed the sale of an additional hotel property to an unrelated party for $16.1 million, resulting in a gain of approximately $8.0 million. The net book value of the hotel's property and equipment at the time of the sale was approximately $8.1 million. 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. 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 and two District Directors 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 47 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. 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, District Directors 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 and to operate hotels 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 Doubletree/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, and that all necessary permits and approvals to operate the Scheduled Hotels will be obtained in the ordinary course of business. To supplement the Company's self insurance programs, umbrella, property, auto, commercial liability and worker's compensation insurance is provided to the JQH Hotels under a blanket policy. Insurance expenses for the JQH Hotels were approximately $6.3 million, $6.2 million and $2.2 million in 1996, 1997 and 1998, respectively. During 1998, the Company realized continued favorable trends in insurance expense as a result of claim experience and rate improvements and a favorable buyout of several prior self-insured years. 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 305 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. Kenneth J. Weber is the Chief Financial Officer of the Company. He joined the Company in April 1998 and became a director of the Company in May 1998. Prior to joining the Company, Mr. Weber was the Executive Vice President and Chief Financial Officer of Chartwell Leisure, a New York based hotel company. From 1992 to 1996, Mr. Weber was the Senior Vice President and Chief Financial Officer of Omni Hotels, based in Hampton, New Hampshire. From 1986 to 1992, Mr. Weber worked with Red Lion Hotels, based in Vancouver, Washington, holding the positions of Senior Vice President, Chief Accounting Officer and Corporate Controller. Mr. Weber began his career in the hotel industry with the Marriott Corporation, holding positions in several of Marriott's divisions, including President and Chief Executive Officer of Farrell's Ice Cream Parlour Restaurants from 1983 to 1986. Lonnie A. Funk is Senior Vice President of Operations. He began with the Company in 1975 as the General Manager at the Holiday Inn in Billings, Montana. In 1981, he was promoted to Regional Vice President of the Midwest Region. In November 1998, he was promoted to his current position. 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. Paul E. Muellner is Vice President, Corporate Controller of the Company. Prior to joining the Company in June of 1998, Mr. Muellner was Vice President of Finance for Carnival Hotels. He also served as Operations Controller at Omni Hotels as well as positions with Red Lion Inns and Marriott Corporation. 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 1998, 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 33 of the Owned Hotels are located, while nine of the Owned Hotels are subject to long-term ground leases. Description of Hotels - General The JQH Hotels are located in 21 states and contain a total of 11,469 rooms. The JQH Hotels operate primarily under the Holiday Inn and Embassy Suites trade names. 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 impressive 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 $20.9 million in the last four years on the Owned Hotels. During 1999, the Company expects to spend approximately $15.5 million on refurbishment of the Owned Hotels. Owned Hotels The Owned Hotels consist of 42 hotels, which are located in 20 states and contain a total of 10,293 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) 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. Little Rock, AR Embassy Suites 251 Atrium; 8/97 Meeting Space: 14,000 sq. ft. Springdale, AR Holiday Inn 206 Atrium; 7/89 Meeting Space: 18,000 sq. ft. Convention Center; 29,280 sq. ft. Springdale, AR Hampton Inn & Suites 102 Meeting Space: 400 sq. ft. 10/95 Bakersfield, CA Holiday Inn Select 259 Meeting Space: 9,735 sq. ft. (c) 6/95 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 280 Meeting Space: 9,000 sq. ft. 6/72 Denver, CO(a) Holiday Inn (International 256 Atrium; 10/82 Airport) Trade Center: 66,000 sq. ft. (b) Denver, CO Holiday Inn (Northglenn) 235 Meeting Space: 20,000 sq. ft. 12/80 Fort Collins, CO Holiday Inn 259 Atrium; 8/85 Meeting Space: 12,000 sq. ft. St. Augustine, FL World Golf Village Resort 302 Atrium; 5/98 Convention Center; 40,000 sq. ft. Tampa, FL Embassy Suites 247 Atrium; 1/98 Meeting Space; 18,000 sq. ft. Joliet, IL Holiday Inn 200 Meeting Space: 5,500 sq. ft. 3/71 Cedar Rapids, IA Collins Plaza 221 Atrium; 9/88 Meeting Space: 11,250 sq. ft. Davenport, IA Radisson 221 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. Topeka, KS Capitol Plaza 224 Atrium; 8/98 Convention Center; 26,000 sq. ft. Bowling Green, KY University Plaza 218 Meeting Space: 4,000 sq. ft. (c) 8/95 Branson, MO Chateau on the Lake 302 Atrium; Meeting 5/97 Space: 40,000 sq. ft. 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. Kansas City, MO Homewood Suites 119 Extended Stay 5/97 Springfield, MO Holiday Inn 188 Atrium; 9/87 Meeting Space: 3,020 sq. ft. Omaha, NE Embassy Suites 249 Atrium; 1/97 Meeting Space: 13,000 sq. ft. Reno, NV Holiday Inn 286 Meeting Space: 8,700 sq. ft. 2/74 Albuquerque, NM Holiday Inn 311 Atrium; 12/86 Meeting Space: 12,300 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 Raleigh-Durham, NC Embassy Suites 273 Atrium; 9/97 Meeting Space: 20,000 sq. ft. Portland, OR(a) Holiday Inn 286 Atrium; 4/79 Trade Center: 37,000 sq. ft. (b) Portland, OR(a) Embassy Suites 253 Atrium; 9/98 Meeting Space: 11,000 sq. ft. 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) Radisson 288 Atrium; 12/85 Meeting Space: 14,300 sq. ft. Charleston, WV Embassy Suites 253 Atrium; 12/97 Meeting Space: 14,600 sq. ft. Madison, WI Marriott 292 Atrium; 10/85 Meeting Space: 15,000 sq. ft. (b) Convention Center: 50,000 sq. ft.
________________________ (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. Managed Hotels The Managed Hotels consist of five hotels (three Holiday Inns, one Sheraton and one Days Inn) located in two states (Missouri and South Dakota), and contain a total of 1,176 guest rooms. Mr. Hammons directly owns four of these five 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. There is a convention and trade center adjacent to three 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 since November 23, 1994 under the symbol "JQH."
Stock Price Per Share High Low 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 1998 First Quarter $ 8-15/16 $7-11/16 Second Quarter $ 8 $6-13/16 Third Quarter $ 7-3/16 $3-11/16 Fourth Quarter $ 4-1/2 $ 3-3/16
On March 19, 1999, there were approximately 270 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 2,000 beneficial owners of its Class A Common Stock. On March 19, 1999, the last reported sale price of the Class A Common Stock on the NYSE was $4-9/16. No dividends have been declared for the Company's stock during the past five years. Item 6. Selected Financial Data. The information required by this item is hereby incorporated by reference to the material appearing in the 1998 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. The information required by this item is hereby incorporated by reference to the material appearing in the Annual Report to Shareholders under the caption of "Quantitative and Qualitative Disclosures About Market Risk." 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 4, 1999 (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 Statement 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 1998 Year-End and Fiscal 1997 Year- End Consolidated Statements of Income for the 1998, 1997 and 1996 Fiscal Years Consolidated Statements of Changes In Minority Interest and Stockholders Equity (Deficit) for Fiscal 1998, 1997 and 1996 Consolidated Statements of Cash Flows for Fiscal 1998, 1997 and 1996 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 10.7 Employment Agreement between John Q. Hammons Hotels, Inc. and Debra M. Shantz dated as of May 1,1995 as amended on October 31, 1997. 10.13 Employment Agreement between John Q. Hammons Hotels, Inc. and Kenneth J. Weber dated as of April 27, 1998 10.18 1994 Employee Stock Option Plan 10.19 1999 Non-Employee Director Stock and Stock Option Plan 14(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended January 1, 1999. 14(c) 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. 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, 1999 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, 1999.
Signatures Title ---------- ----- /s/ John Q. Hammons Chairman and Founder of John Q. Hammons Hotels, Inc. - -------------------- (Principal Executive Officer) John Q. Hammons /s/ Kenneth J. Weber Director, Chief Financial Officer of John Q. Hammons, Hotels, Inc. - -------------------- (Principal Financial and Accounting Officer) Kenneth J. Weber /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/ 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 10.7 Employment Agreement between John Q. Hammons Hotels, Inc. and Debra M. Shantz dated as of May 1,1995 as amended on October 31, 1997. *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. 10.13 Employment Agreement between John Q. Hammons Hotels, Inc. and Kenneth J. Weber dated as of April 27, 1998 ***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 10.19 1999 Non-Employee Director Stock and Stock Option Plan 12.1 Computations of Ratio of Earnings to Fixed Charges of the Company 13.1 1998 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-10.7 2 DEBRA M. SHANTZ EMPLOYMENT AGREEMENT EXHIBIT 10.7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT between John Q. Hammons Hotels, Inc., a Delaware Corporation (the "Company"), and Debra M. Shantz (the "Executive"), dated as of the 1st day of May, 1995. WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company. NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows: 1. Offer and Acceptance of Employment. Commencing on May 10, 1995 (the "Effective Date"), the Company agrees to and hereby does, employ the Executive as its in-house legal counsel. The Executive hereby accepts such employment in such capacity and agrees to discharge faithfully, diligently, and to the best of her ability the responsibilities of that position. 2. Term. This Agreement shall commence on the Effective Date for an initial period of three (3) years (the "Employment Term") and continuing thereafter from year to year (a "Renewal Term") provided that either the Company or the Executive may terminate such employment at the end of the Employment Term or any Renewal Term by giving the other not less than six (6) months prior written notice of such termination. The foregoing notwithstanding either the Executive or the Company may terminate such employment ninety (90) days after the Effective Date (the "Option Period") with two (2) weeks written notice to the other of such termination. 3. Duties and Responsibilities. (a) During the Employment Term, the Executive (i) shall be in charge of overseeing on going litigation in which the Company is involved, (ii) shall be in charge of coordinating the Company's legal matters with outside counsel, (iii) shall report to the Chairman and President and (iv) shall assume and perform such further reasonable responsibilities and duties assigned to her by the President or Chairman of the Board of Directors. If elected or appointed, the Executive shall serve as a director of the Company without any additional compensation. (b) Excluding periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote her working time and energy to the business and affairs of the Company and to use her best efforts to perform the responsibilities assigned to her hereunder faithfully and efficiently. Executive will work thirty-five (35) hours per week on the Company's affairs and the Company agrees to allow the Executive flexibility in her work schedule, specifically to include permitting Executive to depart at 3:00 p.m. each day. 3. Compensation. The following provisions apply during the time the Executive is employed by the Company: (a) Base Salary. During the Employment Term, the Executive shall receive a base salary of Ninety Thousand Dollars ($90,000.00) (the "Base Salary") payable in accordance with the Company's normal payroll practices for salaried employees. The Base Salary shall be reviewed annually and may be increased (but not decreased) in the course of each such review. Under no circumstances shall any increase in the Base Salary (i) limit or reduce any other obligation to the Executive under this Agreement or (ii) be later reduced or eliminated, once effective. (b) Annual Bonus. In addition to the Base Salary, the Executive shall be entitled, for each year of the Employment Term or any Renewal Term, to an annual bonus ("Annual Bonus") in an amount determined by the Chairman of the Board and President of the Company. Each Annual Bonus shall be determined and accrued as of the end of the fiscal year for which the Annual Bonus is awarded and paid no later than April 1 of the following year, unless the Executive shall otherwise timely elect to defer the receipt of the Annual Bonus under any deferred compensation plan of the Company then in effect. (c) Savings and Retirement Plans. In addition to the Base Salary and Annual Bonus payable as hereinabove provided, the Executive shall be entitled to participate, during the Employment Term and any Renewal Term, in all savings and retirement plans or programs applicable to other key executives of the Company. (d) Welfare Benefit Plans. During the Employment Term and any Renewal Term, the Executive, and the Executive's dependents as to medical and dental benefits, shall be eligible to participate in and shall receive all benefits under each welfare benefit plan of the Company, including, without limitation, all medical, dental, disability (at least $250,000), group life (at least $75,000), accidental death and travel accident (at least $250,000) insurance plans and programs of the Company. (e) Expenses. During the Employment Term and any Renewal Term, the Executive shall be entitled, upon submission of proper substantiation, to receive reimbursement for all reasonable business-related expenses actually paid or incurred by the Executive in connection with the discharge of her duties hereunder and in the promotion of the business of the Company. (f) Fringe Benefits. During the Employment Term and any Renewal Term, the Executive shall be entitled to fringe benefits in accordance with the policies of the Company. (g) Vacation. The Executive shall be entitled to five (5) days of paid vacation in 1995 and ten (10) days of paid vacation during 1996, and fifteen (15) days of paid vacation per year thereafter, excluding weekends or days which the Company is not open for business, which are the following holidays: Christmas, New Year's Day, Thanksgiving and the day after, Memorial Day, Labor Day and July 4th. (h) Bar Dues. During the Employment Term and any Renewal Term, the Company shall pay the Executive's Bar Association Dues to allow the Executive to maintain her membership in the American, Missouri and Springfield Metropolitan Bar Associations. (i) Continuing Legal Education. During the Employment Term and any Renewal Term, the Company shall pay for the Executive to attend the requisite continuing legal education programs to maintain her license to practice law. (j) Malpractice Insurance Premium. During the Employment Term and any Renewal Term, the Company shall pay for the Executive's Malpractice Premium to provide the Executive with legal malpractice coverage for errors and omissions. (k) Stock Options. The Executive shall receive the option to purchase shares of the Class A Common Stock of the Company as options are awarded to the other executives of the Company. (l) Executive's Assistant. The Company shall hire as the Executive's Assistant, Micca L. Braden to be paid Twenty-Five Thousand Dollars ($25,000.00) per year. Ms. Braden shall be entitled to paid vacation of five (5) days during 1995, and ten (10) days per year for each year thereafter, and health and disability insurance fully paid for by the Company. (m) Legal Resources. The Company shall provide the Executive with legal publications and resources at the Executive's request, including subscriptions to legal publications, purchase of software and books necessary for the Executive to perform her job for the Company. (n) Highland Springs Country Club Membership. Company shall provide Executive, during the Employment Term and any Renewal Term, a Social Membership to Highland Springs Country Club; however, Executive shall pay all monthly dues and other costs associated with such membership. 5. Termination. The following provisions relate solely to termination of the Executive's employment during the Employment Term or any Renewal Term: (a) Death or Disability. (i) Subject to Section 7 below, this Agreement shall terminate automatically upon the Executive's death. (ii) Subject to Section 7 below, the Company shall at all times have the right to terminate the Executive's employment hereunder at any time after the Employee shall be absent from her employment, for whatever cause, including but not limited to mental or physical incapacity, illness or disability, (collectively "Disability") for a continuous period of more than twenty-six (26) weeks. (b) Cause. The Company may terminate the Executive's employment for "Cause" by a majority vote of the Company's Board of Directors at a meeting where the Executive has had an opportunity to be present and express her response. For purposes of this Agreement, "Cause" means (i) the conviction of the Executive by a court of competent jurisdiction of crime involving moral turpitude, (ii) the commission by the Executive of an act of fraud on the Company; (iii) the misappropriation or attempted misappropriation by the Executive of any funds or property of the Company, or (iv) the continuing failure of the Executive to perform her obligations under Section 2 of this Agreement thirty (30) days after having received a written notice specifying the manner in which she is failing to perform those obligations. 6. Notice of Termination. Any termination by the Company for Cause shall be communicated in writing to the Executive in accordance with Section 13(b) of this Agreement and if the termination date is other than the date of receipt, the notice shall specify the termination date. 7. Obligations of the Company Upon Termination. The following provisions apply only in the event the Executive is terminated during the Employment Term or any Renewal Term: (a) Death. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligation to the Executive's legal representatives under this Agreement other than those salary, bonus and fringe benefit amounts accrued and payable hereunder at the date of the Executive's death. Anything in this Agreement to the contrary notwithstanding, the Executive's family shall be entitled to receive benefits at least equal to those provided by the Company generally to surviving families of key executives of the Company under its plans, programs and policies relating to family death benefits, if any. (b) Disability. If the Executive's employment is terminated by reason of the Executive's Disability, the Executive shall be entitled to receive the amount specified in Section 7(d)(i) and (ii) hereof and to receive disability and other benefits at least equal to those provided by the Company to disabled employees and/or their families in accordance with such plans, programs, and policies relating to disability, if any. (c) Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive her Base Salary through the date of termination at the rate in effect at the time notice of termination is given and shall have no further obligation to the Executive under this Agreement except as to vested employee benefits. (d) Termination or Failure to Renew Without Cause. If the Company shall terminate or fail to renew the Executive's employment with the Company without cause: (i) the Company shall pay to the Executive at the time of termination, an amount equal to two (2) year's current Base Salary; and, in the case of vested compensation previously deferred by the Executive, all amounts of such compensation previously deferred and not yet paid by the Company; (ii) the Company shall, promptly upon submission by the Executive of supporting documentation, pay or reimburse, or cause to be paid or reimbursed, to the Executive any business related costs and expenses paid or incurred by the Executive on or before the date of termination which would have been payable under Section 3(e) if the Executive's employment had not terminated; and (iii) until the six-month anniversary of the Executive's termination, the Company shall continue benefits (or equivalent coverage) to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs and policies described in Sections 3(d) and 3(f) of this Agreement if the Executive's employment had not been terminated. 8. Non-Competition. At all times during the Executive's employment with the Company and for a period of two (2) years after the Executive is no longer employed by the Company, the Executive shall not anywhere in the United States, directly or indirectly, engage in any business, enterprise or employment whether as owner, operator, shareholder, director, partner, financial backer, creditor, consultant, agent, executive or any capacity whatsoever that is directly or indirectly competitive with the business of the Company; provided, however, that the foregoing shall not be deemed to prohibit the Executive from (i) acquiring, solely as an investment and through market purchases, securities of any issuer that are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the NASDAQ National Market System or any similar system of automated dissemination of quotations of securities prices in common use, so long as the Executive is not a member of any control group (within the meaning of the rules and regulations of the Securities and Exchange Commission) of any such issuer, and (ii) practicing law at the location of her choice. 9. Non-Solicitation of Employees and Customers. The Executive shall not at any time during her employment hereunder and for a period of two (2) years after the date her employment is terminated for any reason, directly or indirectly, for herself or for any other person, firm, corporation, partnership, association or other entity, (i) attempt to employ, employ or enter into any contractual arrangement with any employee or former employee of the Company, its affiliates, or predecessors-in-interest, unless such employee or former employee has not been employed by the Company, its affiliates, or predecessors-in-interest for a period in excess of six (6) months; and/or (ii) call on or solicit any of the actual or targeted prospective customers or suppliers of the Company with respect to any matters, related to or competitive with the business of the Company, nor shall the Executive make known the names or addresses of such customers or suppliers or any information relating in any manner to the Company's trade or business relationships with such customers or suppliers. 10. Non-Disclosure. Except as expressly permitted by the Company, or in connection with the performance of her duties hereunder, the Executive shall not at any time during or subsequent to her employment by the Company, disclose, directly or indirectly, to any person, firm, corporation, partnership, association or other entity any proprietary or confidential information relating to the Company or any information concerning the Company's financial condition or prospects, the Company's customers or suppliers, the Company's sources of leads and methods of obtaining new business, the design, development, or construction of the Company's properties or the Company's methods of doing and operating its business (collectively, "Confidential Information"). Confidential Information shall not include information which, at the time of disclosure, is known or available to the general public by publication or otherwise through no act or failure to act on the part of the Executive. The Executive acknowledges and agrees that the Confidential Information is a valuable, special and unique asset of the Company's business. 11. Books and Records. All books, records and accounts relating in any manner to the Company's customer, suppliers, or methods of conducting business whether prepared by the Executive or otherwise coming into the Executive's possession, and all copies thereof in the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately to the Company upon termination of the Executive's employment hereunder or upon the Company's request at any time. 12. Injunction. The Executive acknowledges that if she were to breach any of the provisions of Sections 8, 9, 10, or 11 it would result in immediate and irreparable injury to the Company which cannot be adequately or reasonably compensated at law. Therefore, the Executive agrees that the Company shall be entitled, if any such breach shall occur or be threatened or attempted, if it so elects, to a temporary and permanent injunction, without being required to post a bond, enjoining and restraining a breach by the Executive, her associates, her partners or agents, either directly or indirectly, and that right to injunction shall be cumulative to whatever remedies or actual damages the Company may possess. 13. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company the benefits accrued and payable hereunder shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. (c) In the event that another corporation or unincorporated entity becomes a Successor (as such term is defined below) of the Company, then the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had been no Successor. As used herein, the term "Successor" means another corporation or unincorporated entity or group of corporations or unincorporated entities which (i) acquires all or substantially all of the assets of the Company, or (ii) is the surviving entity as a result of the merger of the Company into that entity. 14. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successor and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Debra M. Shantz ------------------- 3760 E. Meadowmere Place Springfield, Missouri 65809 If to the Company: John Q. Hammons Hotels, Inc. ----------------- 300 John Q. Hammons Parkway Springfield, Missouri 65802 Attention: John Q. Hammons with a copy to: William J. Hart -------------- Farrington & Curtis, P.C. 750 No. Jefferson Springfield, Missouri 65802 or to such other address as either party shall have furnished to the other in writing on accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) If any term or provision of the Agreement or the application hereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of that term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. Moreover, if a court of competent jurisdiction deems any provisions hereof to be too broad in time, scope or area, it is expressly agreed that provision shall be enforced to a lesser degree which the court of competent jurisdiction finds enforceable. (d) The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. (f) Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver of consent to any subsequent breach by either party hereto. (g) In the event that either party hereto brings suit for the collection of any damages resulting from, or the injunction of any action constituting, a breach of any of the terms or provisions of this Agreement, then the party found to be at fault shall pay all reasonable court costs and attorneys' fees of the other. (h) The Executive shall not delegate the employment obligations pursuant to this Agreement to any other person. IN WITNESS WHEREOF, the Executive has hereunto set her hand, and the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. JOHN Q. HAMMONS HOTELS, INC. ________________________________ By ______________________________________ Debra M. Shantz John Q. Hammons, Chairman of the Board EXHIBIT 10.7 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT is made and entered into as of the 31st day of October, 1997, by and between John Q. Hammons Hotels, Inc. (the "Company") and Debra Mallonee Shantz (the "Executive"). WHEREAS, the Company and Executive previously entered into an Employment Agreement dated as of May 1, 1995, (the "Agreement") and Company and Executive now desire to amend the terms of the Agreement as set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and provisions set forth herein and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Company and Executive hereby agree to amend the Agreement as follows: 1. Paragraph 2 - Term shall be amended in its entirety as follows: "This Agreement shall continue for a renewal term of three (3) years (the "Renewal Term"), commencing May 1, 1998, and continuing thereafter from year to year, provided that either the Company or the Executive may terminate such employment at the end of the Renewal Term by giving the other not less than six months' prior written notice of such termination." 2. Paragraph 3(a) - Compensation shall be amended in its entirety as follows: "Base salary. During the Renewal Term, the Executive shall receive a base salary of One Hundred Thirty-five Thousand Dollars (135,000.00) (the "Base Salary"), payable in accordance with the Company's normal payroll practices for salaried employees. The Base Salary shall be reviewed annually and may be increased (but not decreased) in the course of each such review. Under no circumstances shall any increase in the Base Salary (i) limit or reduce any other obligation to the Executive under this Agreement or (ii) be later reduced or eliminated once effective." 3. Continuing Validity. Except as expressly modified herein, all remaining terms and conditions of the Agreement shall remain in full force and effect. COMPANY John O. Hammons Hotels, Inc. ------------------------------------- JOHN Q. HAMMONS Chairman of the Board and Chief Executive Officer EXECUTIVE ------------------------------------- Debra Mallonee Shantz EX-10.13 3 KENNETH J. WEBER EMPLOYMENT AGREEMENT EXHIBIT 10.13 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement"), executed March 27, 1998, and to be effective April 27, 1998, is by and between JOHN Q. HAMMONS HOTELS, INC., a Delaware Corporation (the "Company"), and KENNETH J. WEBER ("Employee"). RECITALS -------- Employee will be employed as the Chief Financial Officer of the Company on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: AGREEMENT --------- 1. Employment. The Company hereby employs Employee as Executive Vice President and Chief Financial Officer ("CFO") of the Company for the Term (as defined below) of this Agreement, and Employee hereby accepts employment on the terms and subject to the conditions set forth herein. Employee shall have and exercise the authority and perform the duties normally incident to the office of CFO, as well as such other duties as may be reasonably delegated to him by the Company's Chief Executive Officer (the "CEO") and Board of Directors (the "Board"). 2. Term of Agreement. The term of this Agreement (the "Term") shall begin on April 27, 1998, or such earlier date as mutually agreed upon by the parties hereto (the "Commencement Date"), and shall continue until the date that is three (3) years after the Commencement Date. 3. Compensation. (a) Base Salary. The Company shall pay to Employee an annual salary of Two Hundred Fifty Thousand Dollars ($250,000.00) (the annual salary, as it may be increased from time to time by the Board on an annual basis, is referred to herein as the "Base Salary") in equal bi-weekly installments. (b) Discretionary Bonus. Each year during the Term, the Company shall pay to Employee a bonus (the "Annual Bonus") of up to thirty-five percent (35%) of his Base Salary for that year based on reasonable, performance-based standards as established from time to time in the reasonable discretion of the Board based on the following criteria: one-half (1/2) of the Annual Bonus shall be based on the Compensation Committee's evaluation of Employee's overall job performance; the other one-half (1/2) of the Annual Bonus shall be based on the financial performance of the Company during that year, including the relative financial performance of the Company as compared to the immediately preceding year, and the extent to -1- which the Company has met or exceeded the Company's annual budget projections as adopted by the Board for that year. All bonuses payable pursuant to this Section 3(b) shall be paid to Employee in cash or other immediately available funds at the same time bonuses are paid to the other officers of the Company. (c) Stock Options. The Company shall grant to Employee options to purchase one hundred thousand (100,000) shares ("Options") of the Company's Class A Common Stock, par value One Dollar ($1.00) ("Common Stock"), for their fair market value on the grant date of the option, pursuant to the Company's 1994 Stock Option Plan as in effect on the date hereof. Except as otherwise provided herein, each of the Options granted hereunder shall vest and become exercisable over a four (4) year period following their Grant Date as follows: twenty-five percent (25%) of the granted Options shall vest and become exercisable on each anniversary of the Grant Date of the Options. Notwithstanding the foregoing, all Options granted to Employee shall immediately vest and become exercisable upon the sale, merger, reorganization or recapitalization of the Company pursuant to which the holders of the Common Stock of the Company become entitled to receive stock, securities, or other assets in exchange for their shares of Common Stock. 4. Benefits. Employee shall be entitled to receive the following benefits from the Company: (a) Insurance. The Company shall, at its sole expense, if Employee is insurable at standard rates, purchase and maintain during the Term (i) a life insurance policy on Employee's life, payable to one (1) or more beneficiaries designated by Employee, in the aggregate amount of Five Hundred Thousand Dollars ($500,000.00); and (ii) such medical and disability insurance as is generally available to other executive employees of the Company. If immediate coverage under the Company's insurance plans is not available to Employee as of the Commencement Date, the Company shall pay, or reimburse Employee for, the cost of maintaining full coverage under Employee's existing life, health and disability insurance policies until Employee is covered under the Company's plans. (b) Retirement Plan. Employee shall be entitled to participate in any retirement, savings or benefit plans that the Company makes available to any of its executive employees. (c) Club Memberships. The Company shall provide membership at (i) Highland Springs Country Club, and (ii) the Tower Club (collectively, the "Country Clubs"). Employee shall be responsible for all monthly dues and food and other incidental charges incurred by Employee for personal use at the Country Clubs. (d) Vacation. Employee shall be entitled to two (2) weeks of paid vacation during calendar 1998 and four (4) weeks of paid vacation per year beginning in January, 1999. -2- (e) Indemnity; D & O Insurance. To the extent permitted by law, the Company shall indemnify Employee for any and all liability or damages incurred by Employee in connection with his employment hereunder; and Employee shall be covered by any Directors and Officers Liability Insurance which is maintained by Company. (f) Miscellaneous. The Company shall reimburse Employee for all costs and expenses reasonably incurred by Employee in connection with the performance of his duties hereunder. 5. Relocation. (a) The Company shall reimburse Employee for two (2) trips to Springfield for Employee and his spouse (including one (1) trip with his children), to locate a residence in Springfield, and all costs and expenses reasonably incurred in connection therewith, including meals, transportation, and lodging at a hotel affiliated with the Company. (b) If Employee begins work at the Company before his immediate family moves to Springfield, the Company shall reimburse Employee for all reasonable expenses incurred in connection with Employee's reasonable round-trip travel between Springfield and New York, for up to three (3) months after the Commencement Date. (c) The Company shall pay the direct relocation costs for Employee and his family to move from New York to Springfield, including without limitation (i) packing and moving their personal effects, furniture and other property (including the cost of shipping up to three (3) cars or, if one (1) or more of the cars are driven to Springfield, the costs associated therewith including mileage reimbursement), (ii) travel costs (including meals and lodging), (iii) the costs of renting an apartment or other temporary living arrangements for up to six (6) months, or until employee purchases a home in Springfield, whichever is earlier, (iv) temporary storage costs for Employee's furniture and personal effects for up to six (6) months, and (v) insurance costs related to the move. To the extent that the amount of any reimbursement hereunder will be included in Employee's taxable income (Federal or State), and is not deductible for income tax purposes, the Company shall pay to Employee as reimbursement for such moving expenses an aggregate amount that is sufficient to cover all of Employee's out-of-pocket moving expenses on an after-tax basis. For example, and without limiting the generality of the foregoing, if reimbursement of Seven Hundred Fifty Dollars ($750.00) of Employee's actual moving expenses would be included in Employee's taxable income (without an offsetting deduction), and if Employee were taxed at a twenty-five percent (25%) effective rate (combined Federal and State), then the Company would be obligated to pay Employee an aggregate of One Thousand Dollars ($1,000.00) for such moving expenses (i.e., Seven Hundred Fifty Dollars ($750.00) on an after-tax basis). 6. Termination. -3- (a) The Company may terminate this Agreement at any time with or without "Cause." As used herein, the term "Cause" means gross negligence, fraud or wilful misconduct. (b) If Employee is terminated for Cause or if Employee voluntarily terminates his employment with the Company prior to the end of the Term, (i) Employee shall be entitled to receive his Base Salary through the date of such termination; (ii) any Stock Options not vested at the time of such termination shall be forfeited; and (iii) Employee will not be entitled to receive his Annual Bonus, or any portion thereof, for the fiscal year in which such termination occurs. (c) This Agreement shall terminate upon the death of Employee or, at the election of the Company, if Employee is unable to perform his duties hereunder by reason of illness, injury or incapacity for one hundred eighty (180) consecutive days ("Disability") (during which time Employee shall continue to be compensated as provided herein). (d) Either the Company or Employee may elect not to extend the Term by giving written notice of such non-extension to the other party at least one hundred and twenty (120) days prior to the end of the Term. (e) If the Company materially changes the authority and duties of Employee, such that he no longer serves as the CFO of the Company, and Employee resigns as a result thereof, then the Company shall be deemed to have terminated the Employee without Cause for purposes of this Agreement. 7. Severance. If this agreement is terminated (i) by the Company without Cause, (ii) pursuant to an election by the Company not to extend the Term, (iii) upon the death or Disability of Employee, or (iv) by either the Company or Employee if there is a material change in Employee's authority and duties such that he no longer serves as the CFO, then Employee shall be entitled to severance pay equal to his Base Salary for the balance of the year in which the termination occurs and an amount equal to one (1) year of his Base Salary and prior years bonus, and all Options granted to Employee shall immediately vest and be exercisable. 8. Covenant Not to Compete. Employee agrees that during the Term and for one (1) year after the termination of this Agreement by Employee prior to the end of the Term (except pursuant to Section 6(e) above), Employee will not, without the prior written consent of the Chief Executive Officer of the Company, which will not be unreasonably withheld, accept employment with, or serve as a consultant to, or become an investor with, officer, director or shareholder of any person, firm or corporation (including any new business started by Employee alone or with others) that directly competes with the Company in any market where Company has an existing hotel or has plans, as of the termination of Employee's employment, for the construction of a hotel. 9. Miscellaneous. (a) For purposes of this Agreement, all notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when personally delivered, two (2) days after deposit in the mail if mailed by certified mail, return receipt -4- requested, or when received if delivered by a nationally recognized overnight courier service, or by facsimile. Notices to the Company shall be given to the Company's secretary, addressed to the Company's corporate headquarters. Notices to Employee shall be addressed to Employee's most recent address as set forth in the personnel records of the Company. Either party shall be entitled to change the address at which notice is to be given by providing notice to the other party of such change in the manner provided herein. (b) This Agreement sets forth the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior agreements, whether written or oral. This Agreement may be amended only by a writing signed by the parties hereto. Each party represents and warrants that this Agreement has been duly and validly authorized, executed and delivered by such party and constitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms. (c) This Agreement shall be binding upon, and inure to the benefit of the parties, their respective heirs, successors, personal representatives and assigns. (d) No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the person or party against whom it is charged. (e) This Agreement may be executed in one (1) or more counterparts, any one (1) of which need not contain the signatures of more than one (1) party, but all such counterparts taken together will constitute one (1) and the same instrument. Signatures may be exchanged by telecopy, with original signatures to follow. Each party to this Agreement agrees that it will be bound by its own telecopied signature and that it accepts the telecopied signature of the other party to this Agreement. (f) This Agreement shall be governed by and construed in accordance with the laws of the state of Missouri. IN WITNESS WHEREOF, Company and Employee have caused this Employment Agreement to be executed as of the date first set forth above. COMPANY: JOHN Q. HAMMONS HOTELS, INC. By:_________________________________ Name (Print):_______________________ Title:______________________________ EMPLOYEE: -5- ____________________________________ Kenneth J. Weber -6- EX-10.19 4 NON-EMPLOYMENT AGREEMENT EXHIBIT 10.19 JOHN Q. HAMMONS HOTELS, INC. 1999 NON-EMPLOYEE DIRECTOR STOCK AND STOCK OPTION PLAN This John Q. Hammons Hotels, Inc. 1999 Non-Employee Director Stock and Stock Option Plan (the "Plan"), was duly adopted by t he Board of Directors for John Q. Hammons Hotels, Inc., a Delaware corporation (the "Company") on February 23, 1999. Article I: Purpose The purpose of the Plan is to encourage qualified persons to become and remain directors of the Company, and to provide directors of the Company with a direct stake in its success. Article II: Definitions Unless otherwise defined herein, in this Plan the following terms shall have the following respective meanings: 2.1 "Board of Directors" or the "Board" means the Board of Directors of the Company. 2.2 "Cause" shall mean a finding by the Board that the Grantee has been engaged in disloyalty to the Company, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her service, or has disclosed trade secrets or confidential information of the Company to persons not entitled to receive such information. 2.3 "Chairman of the Board" means the Chairman of the Board of Directors. 2.4 "Committee" means a Committee of the Board, which consists of no fewer than two members of such Board, all of whom meet the criteria of "Non-Employee Directors" as defined in Rule 16b-3(b)(3)(i), promulgated pursuant to Section 16 of the Exchange Act. 2.5 "Common Stock" means the shares of Class A Common Stock, par value $.01 per share, of the Company. 2.6 "Director" means a member of the Board. 2.7 "Eligible Director" means a Director who is not an employee of the Company or any of its subsidiaries or other affiliates as of the date of the relevant grant of an Option or shares of Common Stock. 2.8 "Exchange Act" means the Securities Exchange Act of 1934, as now in effect or as hereafter amended. 2.9 "Fair Market Value" of a security means, as of any date, (i) the average of the high and the low price of the security as reported on the consolidated tape of the New York Stock Exchange, or if the New York Stock Exchange is closed on such date, the next preceding date on which it was open, or (ii) if the security is not listed for trading on the New York Stock Exchange, but is listed for trading on another national securities exchange or the NASDAQ National Market, the closing price, of the security as reported on the consolidated transaction reporting system applicable to such security, or if no such reported sale of the security shall have occurred on such date, on the next preceding date on which there was such a reported sale, or (iii) if the security is not listed for trading on a national securities exchange or the NASDAQ National Market, but is listed on the NASDAQ SmallCap Market, the average of the closing bid and asked prices, regular way, on the NASDAQ SmallCap Market or, if no such prices shall have been so reported for such date, on the next preceding date for which such prices were so reported. If the shares of Stock are not listed on any of these markets, Fair Market Value shall be determined by the Board in good faith. 2.10 "Grantee" means the holder of an Option or any person entitled to exercise an Option or any person granted Common Stock under the Plan. 2.11 "Option" means a right to purchase Common Stock granted under this Plan. Article III: Administration Subject to the provisions of the Plan, the Board or the Committee shall have the power to construe and interpret the Plan, to determine all questions arising thereunder, and to adopt and amend rules for the administration of the Plan; provided, however, that no such interpretation or rule shall change the number of Options or shares that may be granted under the Plan or the terms upon which, or the times at which, or the periods within which, such Options may be exercised. Any actions of the Board or the Committee shall otherwise maintain the applicable exemption from short-swing profits liability under Section 16 of the Exchange Act. Any decision of the Board in the administration of the Plan shall be final. Article IV: Amount of Common Stock The aggregate number of shares of Common Stock in respect of which Options may be exercised and shares of Common Stock which may be granted shall not exceed 500,000, subject to adjustment pursuant to Article VII. Such shares of Common Stock shall be previously-issued shares reacquired by the Company. If any Options terminate or expire without being exercised in whole or in part, new Options may be granted covering the shares not purchased under such terminated or expired Options. Article V: Grant of Options 5.1 Annual Grants of Options and Common Stock. Commencing with the 1999 annual meeting of stockholders, each Eligible Director who is in office on the day immediately after the election of directors at an annual meeting of the stockholders of the Company: (i) shall automatically be granted a number of shares of Common Stock with a Fair Market Value equal to $10,000 on the date of grant, and (ii) shall automatically be granted an option to purchase 10,000 shares of Common Stock. 5.2 Term of Options. Each Option shall have a term ("Term") of 10 years beginning on the date of grant, unless earlier terminat ed as provided herein. 5.3 Exercise Price. The purchase price per share of Common Stock subject to an Option (the "Exercise Price") shall be the Fair Market Value of a share of Common Stock on the date of grant, subject to adjustment pursuant to Article VII. 5.4 Option Agreements. Each Option shall be evidenced by an agreement in such form as the Board or Committee shall prescribe from time to time and shall be consistent with the Plan. Article VI: Exercise of Options 6.1 Vesting. Each Option granted under the Plan shall be exercisable in respect of twenty five percent of the number of shares of Stock subject to the Option on each of the first four anniversaries of the date on which the Option was granted. The foregoing installments, to the extent not exercised, shall accumulate and be exercisable prior to the termination of the Option. 6.2 Exercise. An Option shall be exercised, in whole or in part by delivery during the Term to the Company of (i) written notice of the exercise specifying the number of shares to be purchased and (ii) full payment in cash for the shares of Common Stock being acquired thereunder. Such delivery may occur on any business day, at the Company's principal office, addressed to the attention of the Secretary. 6.3 Exercise After Termination of Directorship. If a person shall cease to be a Director for any reason other than for Cause while holding an unexpired Option that has not been fully exercised, such Option shall terminate three months thereafter; provided that such person, or in the case of the Director's death or adjudication of incompetency, the Director's executor, administrator, distributees, guardian or legal representative, as the case may be, may exercise the Option (to the extent that it was exercisable pursuant to Section 6.1 on the date the person ceased to be a Director) at any time until the earlier to occur of (i) one year after the date such person ceased to be a Director, or (ii) the expiration of the Term of such Option. If a person ceases to be a member of the Board for "Cause," any option held by the Grantee shall terminate as of the date the Grantee ceases to be a member of the Board. Article VII: Changes in Capitalization 7.1 Adjustments. If the outstanding Common Stock is changed by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split, reverse stock split, stock dividend, rights offering, combination, spin- off, exchange of shares, or the like, an appropriate adjustment shall be made by the Board to (i) the aggregate number of shares then-remaining available under the Plan, (ii) the number of shares of Common Stock in respect of which Options and Common Stock are subsequently to be granted, and (iii) to the extent that the following adjustments are necessary to preserve the economic value of unexercised Options, the number or type of shares of capital stock subject to, and the exercise price of, outstanding Options. 7.2 No Fractional Shares. If a fraction of a share would otherwise result from any adjustment pursuant to Section 7.1, the adjusted share amount shall be rounded to the nearest whole number. Article VIII: Miscellaneous 8.1 Options Non-Transferable. An Option shall not be transferable by its Grantee except by will or the laws of descent and distribution and shall be exercisable during the Grantee's lifetime only by the Grantee or his or her guardian or legal representative; provided, however, that a Grantee may in a manner and to the extent permitted by the Board or Committee (a) designate in writing a beneficiary to exercise an Option after his or her death or (b) transfer an Option to a revocable, inter vivos trust as to which the Grantee is the settler and trustee. 8.2 Expenses. The expenses of the Plan shall be borne by the Company. Any taxes imposed on a Grantee upon exercise of an Option or receipt of a grant of Common Stock shall be paid by such Grantee. 8.3 No Right to Re-Election. Neither the Plan nor any action taken hereunder shall be construed as giving any Director any right to be retained or re-elected as a Director. 8.4 Securities Registration. The Company shall not be obligated to deliver any shares of Common Stock hereunder until there has been compliance with all applicable state and federal securities laws; provided, however, that the Company shall use all reasonable efforts to cause any such compliance. 8.5 Rule 16b-3. The intent of this Plan is to qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan or action by the Plan administrators does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative, to the extent permitted by law and deemed advisable by the Plan administrators, and shall not affect the validity of the Plan. In the event Rule 16b-3 is revised or replaced, the Board may exercise discretion to modify this Plan in any respect necessary to satisfy the requirements of the revised exemption or its replacement. 8.6 Taxes. The Company shall not be required to issue shares of Common Stock upon the exercise of an Option unless the Grantee shall first pay to the Company such amount, if any, as may be requested by the Company to satisfy any liability to withhold federal, state, local or foreign income or other taxes relating to such exercise. 8.7 Rights as Stockholder. A Grantee shall not by reason of any Option have any right as a stockholder of the Company with respect to the shares of Common Stock which may be deliverable upon exercise of such Option until such shares have been delivered to him or her. 8.8 Severability. If all or any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of the Plan not declared to be unlawful or invalid. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which gives effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid. 8.9 Applicable Law. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware. Article IX: Amendment --------------------- The Plan may be amended from time to time by the Board as it shall deem advisable, including amendments necessary to qualify for any exemption or to comply with applicable law or regulations; provided, however, that no amendment to the Plan may be made which changes (i) the criteria for Eligible Directors or (ii) the vesting conditions, term of exercisability, grant timing, grant amount or exercise price of Options in a manner that causes the plan to be other than a "formula plan" as defined under applicable SEC regulations promulgated pursuant to Section 16 of the Exchange Act. No amendment of the Plan shall adversely affect the rights of any Grantee under an Option without the consent of such Grantee. Article X: Termination ---------------------- The Plan shall terminate on February 23, 2009, unless sooner terminated by the Board. Any termination of the Plan shall not affect any Option then outstanding. The Company may retain the right in an Option Agreement to cause a forfeiture of the shares of Stock or gain realized by an Optionee on account of that Optionee taking actions prohibited by the applicable Option Agreement. EX-12.1 5 COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 JOHN Q. HAMMONS HOTELS, INC. HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES (000's omitted)
1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- HISTORICAL EARNINGS: Net income before extraordinary item $15,386 $18,729 $18,524 $ 8,79 $ 338 Add: Interest, amortization or deferred financing fees and other fixed charges (excluding interest capitalized) 33,308 28,904 36,337 45,08 58,257 ------- ------- ------- ------ ------- Historical earnings $48,694 $47,633 $54,861 $53,87 $58,595 ======= ======= ======= ====== ======= FIXED CHARGES: Interest expense and amortization of deferred financing fees $32,932 $28,447 $35,620 $44,32 $57,286 Interest capitalized 957 5,270 7,162 10,25 6,163 Interest element of rentals 376 457 717 76 971 ------- ------- ------- ------ ------- Fixed charges $34,265 $34,174 $43,499 $55,34 $64,420 ------- ------- ------- ------ ------- RATIO OF EARNINGS TO FIXED CHARGES (A) 1.42 1.39 1.26 0.97 0.91 ======= ======= ======= ====== =======
(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 6 1998 ANNUAL REPORT TO SHAREHOLDERS [INSERT PHOTO] John Q. Hammons ---------------- HOTELS & RESORTS 300 john q. hammons parkway . suite 900 . springfield, mo 65806 . (417) 864-4300 . www.jqhhotels.com [INSERT PHOTO] John Q. Hammons ---------------- HOTELS & RESORTS [INSERT PHOTO] 19 98 annual report 1998 --------------------------------------------------- THE BUILDING BLOCKS OF OUR SUCCESS financial highlights - --------------------------------------------------------------- (in thousands, except per share amounts, ratios and hotel data)
1998 1997 1996 OPERATING RESULTS Total Revenues $326,130 $302,274 $268,847 OTHER DATA EBITDA $ 95,029 $ 87,897 $ 78,178 SHARE DATA EBITDA per share/LP Unit $ 4.25 $ 3.93 $ 3.49 Operating Cash Flow per share $ 1.69 $ 1.95 $ 1.90 (EBITDA less interest expense) SELECTED BALANCE SHEET DATA Total Assets $876,486 $816,733 $658,072 Total Debt, including Current Portion $759,716 $695,791 $531,143 Minority Interest of Holders of Limited Partner Units $ 27,392 $ 39,399 $ 33,662 Equity $ 17,847 $ 18,508 $ 16,094 OPERATING DATA Number of Hotels 42 45 39 Number of Rooms 10,293 11,108 9,666 Average Occupancy 62.1% 62.9% 64.7% Average Daily Room Rate (ADR) $ 91.38 $ 82.38 $ 76.16 Room Revenue per Available Room (RevPAR) $ 56.79 $ 51.84 $ 49.25
revenue - ---------------------------------------- 350,000 326,103 302,274 300,000 268,847 250,000 200,000 150,000 100,000 - ---------------------------------------- 1996 1997 1998 occupancy - ---------------------------------------- 65.0% 64.7% 64.0% 63.0% 62.9% 62.1% 62.0% 61.0% 60.0% 59.0% 58.0% 57.0% 56.0% - ---------------------------------------- 1996 1997 1998 adr - ---------------------------------------- 95.00 91.38 90.00 85.00 82.38 80.00 76.16 75.00 70.00 65.00 60.00 - ---------------------------------------- 1996 1997 1998 revpar - ---------------------------------------- 58.00 56.79 56.00 54.00 52.00 51.84 50.00 49.25 48.00 46.00 44.00 42.00 40.00 - ---------------------------------------- 1996 1997 1998 [ ] we will build and maintain the finest hotel PRODUCT in the country. [ ] we will build in LOCATIONS that are ripe for growth. [ ] we will form PARTNERSHIPS with brands that share our vision. [ ] we will employ quality PEOPLE with a commitment to excellence. we will constantly seek new ways to maximize returns for shareholders. these are the BUILDING BLOCKS on which our company stands. on which our company will continue to grow. and that together, form a strong foundation for our organization. ---------------------------------------------------------------------- BOARD OF DIRECTORS JOHN Q. HAMMONS Founder, Chairman & Chief Executive Officer John Q. Hammons Hotels, Inc. KENNETH J. WEBER Executive Vice President Chief Financial Officer John Q. Hammons Hotels, Inc. JACQUELINE A. DOWDY Secretary John Q. Hammons Hotels, Inc. DANIEL L. EARLEY President, Clermont Savings Bank WILLIAM J. HART Partner, Husch & Eppenberger, LLC JOHN E. LOPEZ-ONA President, Anvil Capital JAMES F. MOORE Chairman, Champion Products, Inc. COMMITTEES OF THE BOARD AUDIT COMMITTEE James F. Moore John E. Lopez-Ona COMPENSATION AND STOCK OPTION COMMITTEE Daniel L. Earley James F. Moore John E. Lopez-Ona FINANCE COMMITTEE John E. Lopez-Ona Daniel L. Earley William J. Hart OFFICERS JOHN Q. HAMMONS Founder, Chairman & Chief Executive Officer KENNETH J. WEBER Executive Vice President & Chief Financial Officer LONNIE A. FUNK Senior Vice President Operations JACQUELINE A. DOWDY Secretary STEVEN E. MINTON, AIA Senior Vice President Architecture PAT A. SHIVERS Senior Vice President Administration & Control JOHN D. FULTON Vice President Design & Construction PAUL MUELLNER Vice President Corporate Controller 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 JOE MORRISSEY 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 Sacramento, California BILL PARKER Regional Vice President Central Region Springfield, Missouri [INSERT PICTURE] the atrium at embassy suites downtown/old market, omaha [INSERT PICTURE] MANAGEMENT TEAM OF JOHN Q. HAMMONS HOTELS, INC. Front row (left to right): Jacqueline Dowdy, Pat Shivers, John Q. Hammons, Robert Fugazi, Kenneth Weber, Bill Parker, Steven Minton Second row (left to right): Veanne Stocking, William Mead, John Fulton, Debra Mallonee Shantz, James Miller, Mark Gundlach Third row (left to right): Joe Morrissey, Lonnie Funk, Larry Welch, Paul Muellner, Robert Niehaus a letter to our shareholders - -------------------------------------- 1998 WAS A WATERSHED YEAR FOR JOHN Q. HAMMONS HOTELS, INC. Not only because we own and manage the strongest portfolio of hotels in the nation. But because our properties gain strength every day. In recent years, we have been the predominant developer of upscale, full- service hotels--adding 18 properties to our portfolio since 1994. Our hotels have consistently outperformed the industry in average daily rate (ADR) and revenue per available room (RevPAR). To help this success continue, the company took a series of actions in 1998 to better enhance shareholder value, increase earnings and maximize the performance of our portfolio. WE ENHANCED OUR STAFF OF QUALITY PEOPLE. Kenneth J. Weber joined John Q. Hammons Hotels, Inc. in May as executive vice president and chief financial officer, bringing more than 30 years of experience in financial accounting and management with some of the world's premier lodging companies. Ken has served as chief financial officer for Chartwell Leisure and Omni Hotels, was senior vice president, chief accounting officer and corporate controller for Red Lion Hotels and spent several years with Marriott Corporation in various management positions. Paul Muellner, CPA, joined the team in June as vice president and controller, solidifying our financial planning team. A 20-year veteran of the hospitality industry, Paul had previously held senior positions with such companies as Carnival Hotels & Casinos, Chartwell Leisure, Omni Hotels, Marriott Corporation and Red Lion Hotels. Lonnie Funk, a 23-year veteran of John Q. Hammons Hotels, Inc. who has personally been involved in the opening of more than half of our properties, was named senior vice president, operations, in October. Concurrent with Lonnie's appointment, John Q. Hammons Hotels, Inc. created the position of district director, naming Veanne Stocking and Mark Gundlach as the first two executives to hold this title. They will oversee smaller groups of hotels, enabling more efficient operation of our properties nationwide. 2 WE IMPLEMENTED NEW PROGRAMS. In July, John Q. Hammons Hotels, Inc. partnered with Food Insights, Inc. of Cordova, Tennessee, to implement a system-wide food and beverage purchasing program that will enable the company to consolidate and track all food purchases, saving an estimated $1 million per year. To ensure the program's success, John Q. Hammons Hotels, Inc. has established five regional purchasing teams, comprised of an executive chef and food and beverage director, responsible for establishing standards of product quality and delivery performance. The regional purchasing team structure allows for "bottom up" support and implementation in the field. WE REINVESTED IN OUR OWN COMPANY. This past year, we invested $20 million in refurbishment and capital expenditure in our existing hotels. And last December, our board of directors authorized the repurchase of up to $3 million in company stock. We believe that the stock is currently undervalued and represents a solid investment for the company. WE SUSPENDED BUILDING. In September, we announced that we would delay future development following the completion of the six current projects, which will be finished by early 2000. By that time, we will own or manage 53 hotels in 22 states. Twenty- four (or 45%) of those hotels will be five years old or newer. The suspension of new development will enable these hotels to mature and generate greater revenue for the company without the burden of additional development debt and costs. In 1998, our 10 new hotels (each two years old or newer) generated an average daily room rate (ADR) of $115.55, with occupancy at 54.1 percent and revenue per available room (RevPAR) of $62.54. We anticipate that occupancy and revenue per available room (RevPAR) will both improve as these properties mature. Overall, John Q. Hammons properties generated an average occupancy of 62.1 percent, an average daily room rate (ADR) of $91.38 and revenue per available room (RevPAR) of $56.79. Company revenues and EBITDA improved for the fourth consecutive year, to $326.1 million and $95 million, respectively, increasing 7.9 percent and 8.1 percent, respectively, over 1997. WE NEVER STOPPED LOOKING TOWARD THE FUTURE. John Q. Hammons properties outpace the competition and the industry for four key reasons: superior product, superior location, superior partnerships and superior people. As we move toward the 21st century, John Q. Hammons Hotels, Inc. has positioned itself to become stronger than ever. Our core company strategies will not change. We will continue to own and manage the finest hotels in the markets we serve, and continue to provide the highest level of customer satisfaction. We invite you to share in our success. [INSERT PHOTOS] [INSERT PHOTOS] /s/ John Q. Hammons /s/ Kenneth J. Weber John Q. Hammons Kenneth J. Weber Founder Executive Vice President Chairman and CEO Chief Financial Officer 3 SIGNATURE MEETING FACILITIES [INSERT PHOTO] superior product - -------------------------------------- John Q. Hammons properties consistently rank among the top performers in their respective markets and outperform the industry as a whole. Our success is due in large part to our commitment to developing, building, owning and managing signature hotels that provide the highest level of customer service in the industry. OUR HOTELS AND RESORTS OFFER EXCEPTIONAL VALUE TO OUR GUESTS. We pride ourselves in providing room amenities and meeting space that is superior to the competition in the markets we serve. Each of our properties is designed to meet the demands of the market of today and tomorrow, rather than the market of yesterday. Our signature atrium is the symbol of our commitment to excellence. With lush foilage and water features, we create comfortable and secure environments for those who stay with us. BEYOND THAT, WE CONTINUALLY STRIVE FOR NEW WAYS TO SERVE OUR GUESTS AND BRING OUR PROPERTIES INTO THE 21ST CENTURY. Our Personal Service Desks enable our guest services representatives to meet one-on-one with customers to provide dedicated individual attention. Our guest rooms are 15 to 20 percent larger than those in our competitors' hotels and offer the latest business traveler amenities, such as desk areas with swivel chairs and dual-line telephones with modem ports. And all of our new hotels include a corporate business center with fax machines, computers, secretarial services and work stations to help our guests get work done while on the road. It's a known fact that more than 200,000 new hotel rooms have been added by the industry in the past few years. However, the majority of new hotels are limited-service properties that offer rooms only. All of our hotels offer significant, flexible meeting space for business meetings and conventions. Additionally, many of our properties are attached or located adjacent to convention centers and exhibition halls--a testament to our belief that meeting space, coupled with our other innovative features, will distinguish our hotel properties and sustain our edge in increasingly competitive markets. 4 the atrium at embassy suites portland airport [PHOTO] superior location - --------------------------------------- John Q. Hammons Hotels, Inc. works closely with local businesses and state and local officials to develop hotels that meet the needs of the community and satisfy long-term demand for hotel rooms. In some cases, the company benefits from incentives offered by local governments and other organizations interested in ensuring the development of a quality hotel in their community. In fact, many of our hotels are developed in partnership with local governments to specifically serve meetings and convention markets. As a result, most John Q. Hammons hotels are located near a state capitol, university, corporate headquarters or airport and serve rapidly growing markets of 300,000 or more people. AS OUR FOUNDER WOULD SAY, "WE BUILD WHERE THE PEOPLE ARE." In 1998, we did just that. Opening four new hotels--adding 1,026 new rooms and suites and 95,000 square feet of meeting space to our portfolio. . January saw the completion of our first new property of the year, the 247-suite Embassy Suites Tampa. Built to answer the needs of today's successful business travelers, the hotel is ideally located at the University of South Florida, at the entrance to Busch Gardens. . In May, the World Golf Village Resort Hotel opened near St. Augustine, Florida, joining Branson's Chateau on the Lake as a premier resort and convention destination. The World Golf Village Resort Hotel anchors a 6,500-acre development that will include three championship golf courses, an IMAX(R) Theater, the International Golf Hall of Fame, The Shops of World Golf Village, a luxury condominium development, a Mayo Clinic and the headquarters of PGA TOUR Productions. The luxury-class hotel is adjacent to the St. John's County Convention Center, making it the largest combination hotel and convention center between Atlanta and Orlando, offering more than 40,000 square feet of flexible meeting space for events of all sizes. . John Q. Hammons Hotels, Inc. opened the Topeka Capitol Plaza Hotel, its first hotel in Kansas, in August. Located in the heart of the Kansas state capital and adjacent to the Kansas Expocentre, the Capitol Plaza Hotel offers meeting space for groups ranging from 10 to 10,000 people. . The 253-suite Embassy Suites at Portland Airport opened in September. Located in one of the West Coast's fastest-growing markets, and including over 11,000 square feet of meeting space, this Embassy Suites Hotel is well positioned to become one of the region's leading business meeting properties. In 1999 and 2000, John Q. Hammons Hotels, Inc. will open the Hampton Inn & Suites at Rodeo Center in Mesquite, Texas; the Radisson Resort Coral Springs, Florida; the Embassy Suites at Dallas/Fort Worth International Airport North at Bass Pro Shops(R) Outdoor World; the Renaissance Suites Hotel in Charlotte, North Carolina; the Renaissance Oklahoma City; and the Embassy Suites Charleston Convention Center/Coliseum, South Carolina. To enable our shareholders to benefit from the strengthening portfolio, John Q. Hammons Hotels, Inc. has suspended development of new hotels after the completion of these six properties. WORLD GOLF VILLAGE RESORT HOTEL St. Augustine, Florida [PHOTO] 6 MESQUITE HAMPTON INN & SUITES AT RODEO CENTER [PHOTO] RADISSON RESORT CORAL SPRINGS [PHOTO] EMBASSY SUITES DALLAS/FORT WORTH INT'L AIRPORT NORTH AT BASS PRO SHOPS(R) OUTDOOR WORLD [PHOTO] RENAISSANCE SUITES HOTEL CHARLOTTE [PHOTO] RENAISSANCE OKLAHOMA CITY [PHOTO] EMBASSY SUITES CHARLESTON CONVENTION CENTER/COLISEUM [PHOTO] superior partnerships - ---------------------------------------- John Q. Hammons Hotels, Inc. is affiliated with some of the industry's best-known, best-performing brands. OUR PROPERTIES ARE NOW FRANCHISED UNDER NINE DIFFERENT FLAGS, AS WELL AS OUR OWN PLAZA HOTEL SIGNATURE BRAND. Our association with this diverse product line, as well as two premier resorts, has enabled us to identify promising growth markets and develop the hotel franchise, providing the greatest competitive strength in each marketplace. . John Q. Hammons Hotels, Inc. is now the nation's leading developer of Embassy Suites hotels, with 13 existing Embassy Suites properties and two more scheduled to open. Our Embassy Suites hotels are among the brand's top performers, with four John Q. Hammons Embassy Suites among the franchiser's top ten. Our Embassy Suites Greenville Resort and Convention Center in South Carolina received the prestigious Rose Award from Promus Hotel Corporation as the number one Embassy Suites hotel nationwide. . Based on our reputation and the success of our Marriott hotels in Madison, Wisconsin, and Tucson, Arizona, Marriott Corporation selected John Q. Hammons Hotels, Inc. as the development company to help take its newly acquired Renaissance brand to a higher level. In 1999 and 2000, John Q. Hammons Hotels, Inc. will open the first two newly constructed Marriott-franchised Renaissance hotels. Both the Renaissance Suites Hotel in the Coliseum/Douglas International Airport area of Charlotte, North Carolina and the Renaissance Oklahoma City at Myriad Convention Center will be among the finest hotels in their respective markets. . Our third Radisson property, the Radisson Resort Coral Springs, Florida, will open in April 1999 adjacent to the PGA TOUR Tournament Players Club at Heron Bay, home of the Honda Classic. The 224-room resort hotel offers 17,000 square feet of meeting space and will enhance John Q. Hammons Hotels' position as one of the premier developers of upscale golf-oriented resorts in the country. . Our second Hampton Inn and Suites property will open adjacent to the Rodeo Center in Mesquite, Texas, in March 1999. The Hampton Inn and Suites at Rodeo Center will offer 160 rooms, including 53 suites and 21,000 square feet of meeting space, on the eastern edge of the Dallas/Ft. Worth Metroplex. John Q. Hammons Hotels, Inc. will also manage the adjoining 21,000-square-foot Mesquite Convention Center. The property will become an important anchor for the annual Mesquite Rodeo and an attractive destination for conventions and business meetings. . Our Holiday Inn hotels continue to be top performers. Five of our 18 Holiday Inns received either Torchbearer or Quality Excellence Awards at the Bass Hotels and Resorts Worldwide Conference in 1998, ranking among the top tier of the system's 1,800 hotels worldwide. John Q. Hammons Hotels, Inc. also owns and manages hotels under the Homewood Suites, Crowne Plaza and Sheraton flags. EMBASSY SUITES TAMPA University of South Florida at the entrance to Busch Gardens Tampa, Florida [PHOTO] 8 EMBASSY SUITES PORTLAND AIRPORT Portland, Oregon [PHOTO] CHATEAU ON THE LAKE RESORT HOTEL & CONVENTION CENTER Branson, Missouri [PHOTO] 1998 COMMITMENT TO EXCELLENCE [INSERT PHOTO] superior people - -------------------------------------------- This past year, John Q. Hammons Hotels, Inc. gained a new level of experience with the arrival of Executive Vice President/CFO Kenneth Weber and the promotion of Lonnie Funk to senior vice president of operations. Additionally, in an effort to foster more effective management of its hotels, the company split two of its regional operating divisions into smaller districts. By doing this, the company will not only benefit from more hands-on management, but offer career advancement opportunities to its best and brightest managers. The first two executives to hold the new title of district director, Veanne Stocking and Mark Gundlach, have proven a level of service, dedication and knowledge of the business that will enable more effective operations of our hotels nationwide. Along with Veanne and Mark, more than 8,000 employees across the country take pride in their work and share in the values that helped build our company over the past 40 years: hard work, attention to detail and a commitment to excellence. WE NEVER LOSE SIGHT OF THE FACT THAT OUR EMPLOYEES ARE VALUABLE ASSETS. Through ongoing training, recognition programs and promoting from within, we continually strive to let our people know how important they are to the future of our company. As a result, John Q. Hammons Hotels, Inc. enjoys one of the lowest employee turnover rates in the industry. Superior product. Superior locations. Superior partnerships. And superior people. Combined, they are the building blocks that result in properties that consistently outperform the competition and provide superior return on investment. With your support, we can achieve even more, and enjoy the rewards of our growing organization. We look forward to a prosperous future with you. 10 [INSERT PHOTO] the grand ballroom at chateau on the lake 19 98 [INSERT LOGO] John Q. Hammons ------------------ HOTELS & RESORTS company profile - ------------------------------------------------ John Q. Hammons Hotels, Inc. and its subsidiaries (collectively, the "Company") is a leading independent owner, manager and developer of affordable upscale hotels in market-driven locations. The Company owns 42 hotels located in 20 states containing 10,293 guest rooms and suites (the "Owned Hotels"), and manages five additional hotels located in two states containing 1,176 guest rooms (the "Managed Hotels"). On January 1, 1999, the Company was at various stages of development on six upscale hotels, which are scheduled to open during 1999 and 2000 (the "Scheduled Hotels"). The Company will suspend development after the completion of the Scheduled Hotels. The Company's existing 47 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, corporate headquarters, plant or other major facility. The Company's strategy is to increase cash flow and thereby enhance shareholder value primarily through (i) capitalizing on positive operating fundamentals in the upscale full-service sector of our markets and improving the operating results of our newer hotels, (ii) converting the franchises of its existing hotels to franchise brands that are considered to be more upscale, and (iii) selling certain mature assets and re- investing the net proceeds. The Company has designed each new hotel to meet the specific needs of the market and has engaged in selling efforts months in advance of the 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 and continuing operations of each hotel. The JQH Hotels are designed to appeal to a broad range of hotel customers, including frequent business travelers, groups and conventions, and leisure travelers. Each of the JQH Hotels is individually designed by the Company and most contain an impressive multi-storied atrium, expansive meeting space, large guestrooms or suites and comfortable lounge areas. The JQH Hotels meeting facilities can be readily adapted to accommodate both larger and smaller meetings, conventions, and trade shows. The 13 Embassy Suites JQH Hotels are all-suite hotels, which appeal to the traveler needing or desiring greater space and specialized services. The 18 Holiday Inn JQH Hotels (owned and managed) are affordably priced hotels designed to attract the business and leisure traveler desiring quality accommodations. Management of the JQH Hotels is coordinated from the Company's headquarters in Springfield, Missouri, by its senior management team. Five regional vice presidents and two district directors 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. 12 stock price per share UNAUDITED QUARTERLY STOCK INFORMATION The Company's Class A Common Stock (the "Class A Common Stock") has been listed on the New York Stock Exchange since November 23, 1994 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:
1997 High Low 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 1998 High Low First Quarter $ 8 15/16 $ 7 11/16 Second Quarter $ 8 $ 6 13/16 Third Quarter $ 7 3/16 $ 3 11/16 Fourth Quarter $ 4 1/2 $ 3 3/16
On March 10, 1999, the last reported sales price of the Class A Common Stock on the NYSE was $ 4 5/8. On March 10, 1999, the Company had approximately 2,000 record holders of Class A Common Stock. SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY The selected consolidated financial information of the Company for the 1998, 1997, 1996, 1995 and 1994 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 1994, 1995, 1997 and 1998 Fiscal Years included 52 weeks of operations. 13 selected consolidated financial information
(in thousands, except per share amounts, ratios and hotel data) - ----------------------------------------------------------------------------------------------------- FISCAL YEAR-ENDED 1998 1997 1996 1995 1994 REVENUES Rooms (a) $211,989 $195,296 $171,206 $148,432 $137,387 Food and beverage 91,982 86,183 79,580 70,840 65,308 Meeting room rental and other (b) 22,159 20,795 18,061 15,907 13,998 -------- -------- -------- -------- -------- Total revenues 326,130 302,274 268,847 235,179 216,693 -------- -------- -------- -------- -------- OPERATING EXPENSES Direct operating costs and expenses (c) Rooms 54,600 50,265 43,610 38,543 34,413 Food and beverage 64,174 62,383 57,956 54,228 49,721 Other 3,389 3,385 2,929 2,521 2,397 General, administrative, sales and management service expenses (d,e) 95,500 85,766 74,646 64,234 57,981 Repairs and maintenance 13,438 12,578 11,528 10,131 9,888 Depreciation and amortization 45,580 34,781 24,034 18,346 13,975 -------- -------- -------- -------- -------- Total operating expenses 276,681 249,158 214,703 188,003 168,375 -------- -------- -------- -------- -------- INCOME FROM OPERATIONS 49,449 53,116 54,144 47,176 48,318 OTHER (INCOME) EXPENSES Interest expense and amortization of deferred financing fees, net 57,286 44,325 35,620 28,447 32,932 Gain on sales of property and equipment (f) (8,175) -- -- -- -- -------- -------- -------- -------- -------- INCOME BEFORE MINORITY INTEREST, PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM (g) 338 8,791 18,524 18,729 15,386 Minority interest in earnings of partnership (242) (6,302) (13,280) (13,427) (274) -------- -------- -------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM 96 2,489 5,244 5,302 15,112 Provision for income taxes (h) (120) (75) (105) (107) (41) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (24) 2,414 5,139 5,195 15,071 Income before extraordinary item prior to November 23, 1994 allocable to partners -- -- -- -- (15,004) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ALLOCABLE TO THE COMPANY $ (24) $ 2,414 $ 5,139 $ 5,195 $ 67 ======== ======== ======== ======== ======== BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK BEFORE EXTRAORDINARY ITEM (m) $ -- $ 0.38 $ 0.81 $ 0.82 $ 0.48 ======== ======== ======== ======== ========
14
Continued FISCAL YEAR-ENDED 1998 1997 1996 1995 1994 OTHER DATA EBITDA (i) $ 95,029 $ 87,897 $ 78,178 $ 65,522 $ 62,293 Net Cash provided by operating activities 43,494 27,769 72,052 44,037 46,107 Net Cash used in investing activities (92,925) (193,271) (136,296) (78,085) (149,510) Net Cash provided by financing activities 53,703 161,014 68,916 66,113 104,884 MARGIN AND RATIO DATA EBITDA margin (% of total revenue) (i) 29.1% 29.1% 29.1% 27.9% 28.8% Earnings to fixed charges ratio (j) 0.91x 0.97x 1.26x 1.39x 1.42x OPERATING DATA Owned Hotels: Number of Hotels 42 45 39 37 31 Number of Rooms 10,293 11,108 9,666 9,312 8,054 Average Occupancy 62.1% 62.9% 64.7% 67.1% 68.5% Average Daily Room Rate (ADR) $ 91.38 $ 82.38 $ 76.16 $ 71.68 $ 68.45 Room Revenue per Available Room (RevPAR)(k) $ 56.79 $ 51.84 $ 49.25 $ 48.09 $ 46.88 Increase in Yield (l) 9.5% 5.3% 2.4% 4.8% 3.9% BALANCE SHEET DATA Total Assets $876,486 $ 816,733 $ 658,072 $542,371 $ 443,044 Total Debt, including current portion 759,716 695,791 531,143 458,094 380,869 Minority interest of holders of the LP units 27,392 39,399 33,662 23,082 14,820 Equity 17,847 18,508 16,094 10,955 5,852
(a) Includes revenues derived from rooms. (b) Includes meeting room rental, management fees for providing management services to the Managed Hotels and other. (c) Includes expenses incurred in connection with rooms, food and beverage, and telephones. (d) Includes expenses incurred in connection with franchise fees, administrative, marketing and advertising, utilities, insurance, property taxes, rent and other. (e) Includes expenses incurred providing management services to the Managed Hotels. (f) Gain on sales includes six hotels sold February 6, 1998 and one hotel sold December 31, 1998. (g) 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. The 1998 Fiscal Year includes a $2.2 million extraordinary charge related to early extinguishment of debt. (h) 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. (i) EBITDA represents earnings before net interest expense, provision for income taxes (if applicable) and depreciation and amortization. EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data are not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net earnings as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. (j) Earnings used in computing the earnings to fixed charges ratios consist of net income plus fixed charges. Fixed charges consist of interest expense and that portion of rental expense representative of interest (deemed to be one-third of rental expense). (k) Total room revenue divided by number of available rooms. Available rooms represent the number of rooms available for rent multiplied by the number of days in the period presented. (l) Increase in yield represents the period-over-period increases in yield. Yield is defined as the room revenue per available room (RevPAR). (m) The 1994 unaudited pro forma net income per share represents 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. 15 management's discussions and analysis of financial condition and results of operations General The following discussion and analysis primarily addresses results of operations of the Company for the fiscal years ended January 1, 1999 ("1998"), January 2, 1998 ("1997") and January 3, 1997 ("1996"). The following discussion should be read in conjunction with the selected consolidated financial information of the Company and the consolidated financial statements of the Company included elsewhere herein. The Company's consolidated financial statements include revenues from the Owned Hotels and management fee revenues for providing management services to the Managed Hotels. References to the JQH Hotels include both the Owned Hotels and the Managed Hotels. Revenues from the Owned Hotels are derived from rooms, food and beverage, meeting rooms and other revenues. The Company's beverage revenues include only revenues from the sale of alcoholic beverages, while revenues from the sale of 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 1994 through 1998, the Company's total revenues grew at an annual compounded growth rate of 10.8%, from $216.7 million to $326.1 million. Occupancy for the Owned Hotels during that period decreased 6.4 percentage points from 68.5% to 62.1%. However, the Owned Hotels' average daily room rate (ADR) increased by 33.5% from $68.45 to $91.38 during that period. Room revenue per available room (RevPAR) increased by 21.1% from $46.88 to $56.79. In general, hotels opened during the period from 1994 to 1998 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 1998, the New Hotels included four hotels opened in 1998 and six hotels opened in 1997. The remainder of the Owned Hotels, excluding the New Hotels, are defined as Mature Hotels. In 1998, the Mature Hotels included 32 hotels opened prior to 1997. 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. 16 results of operations of the company - ---------------------------------------
FISCAL YEAR-ENDED 1998 1997 1996 1995 1994 OWNED HOTELS Average Occupancy 62.1% 62.9% 64.7% 67.1% 68.5% Average Daily Room Rate (ADR) $ 91.38 $ 82.38 $ 76.16 $ 71.68 $ 68.45 Room Revenue per Available Room (RevPAR) $ 56.79 $ 51.84 $ 49.25 $ 48.09 $ 46.88 Available Rooms (a) 3,733,166 3,767,387 3,476,279 3,087,700 2,930,893 Number of Hotels 42 45 39 37 31 MATURE HOTELS Average Occupancy 64.1% 63.8% 64.8% 67.1% 68.5% Average Daily Room Rate (ADR) $ 86.50 $ 79.80 $ 76.06 $ 71.68 $ 68.45 Room Revenue per Available Room (RevPAR) $ 55.41 $ 50.90 $ 49.29 $ 48.09 $ 46.88 Available Rooms (a) 3,012,845 3,388,896 3,454,899 3,087,700 2,930,893 Number of Hotels 32 37 37 37 31 NEW HOTELS Average Occupancy 54.1% 55.3% 42.2% -- -- Average Daily Room Rate (ADR) $ 115.55 $ 108.97 $ 100.49 -- -- Room Revenue per Available Room (RevPAR) $ 62.54 $ 60.21 $ 42.42 -- -- Available Rooms (a) 720,321 378,491 21,380 -- -- Number of Hotels 10 8 2 -- -- PERCENTAGES OF TOTAL REVENUES REVENUES Rooms 65.0% 64.6% 63.7% 63.1% 63.4% Food and beverage 28.2% 28.5% 29.6% 30.1% 30.1% Meeting room rental and other 6.8% 6.9% 6.7% 6.8% 6.5% ----------- ----------- ----------- ----------- ----------- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES Direct operating costs and expenses Rooms 16.7% 16.6% 16.2% 16.4% 15.9% Food and beverage 19.7% 20.6% 21.6% 23.0% 22.9% Other 1.0% 1.1% 1.1% 1.1% 1.1% General, administrative, sales and management service expenses 29.3% 28.4% 27.8% 27.3% 26.8% Repairs and maintenance 4.1% 4.2% 4.3% 4.3% 4.6% Depreciation and amortization 14.0% 11.5% 8.9% 7.8% 6.4% ---------- ----------- ----------- ----------- ----------- Total operating expenses 84.8% 82.4% 79.9% 79.9% 77.7% ---------- ----------- ----------- ----------- ----------- Income from Operations 15.2% 17.6% 20.1% 20.1% 22.3% ========== =========== =========== =========== ===========
(a) Available rooms represent the number of New Hotels, the rooms available for rent multiplied by the number of days in the period reported or, in the case of 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 1994, 1995, 1997 and 1998 Fiscal Years each contained 52 weeks, or 364 days. 17 1998 FISCAL YEAR COMPARED TO 1997 FISCAL YEAR Total revenues increased to $326.1 million in 1998 from $302.3 million in 1997, an increase of $23.8 million, or 7.9%. Of the total revenues reported in 1998, 65.0% were revenues from rooms, 28.2% were revenues from food and beverage and 6.8% were revenues from meeting room rental and other, compared with 64.6%, 28.5% and 6.9%, respectively, during 1997. Rooms revenues increased to $212.0 million in 1998 from $195.3 million in 1997, an increase of $16.7 million, or 8.6%, as a result of the operation of two hotels which opened in 1996 and six hotels opened in 1997, and the increase in average daily room rate (ADR). Average daily room rates (ADR) of Mature Hotels increased to $86.50 in 1998 from $79.80 in 1997. The occupancy in the mature hotels was a 0.3 percentage point increase to 64.1% in 1998, compared to 63.8% in 1997. The Mature Hotels' room revenue per available room (RevPAR) improved to $55.41 in 1998 from $50.90 in 1997, an increase of $4.51 or 8.9%. In 1998, the New Hotels included ten hotels, which generated a revenue per available room (RevPAR) of $62.54, up 3.9% from the 1997 revenue per available room (RevPAR) of $60.21, when eight New Hotels were 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 $92.0 million in 1998 from $86.2 million in 1997, an increase of $5.8 million, or 6.7%. This increase was due to revenues associated with newly opened hotels. Meeting room rental and other revenues increased to $22.2 million in 1998 from $20.8 million in 1997, an increase of $1.4 million, or 6.7%. This increase was due to the addition of meeting space in the New Hotels. Direct operating costs and expenses for rooms increased to $54.6 million in 1998 from $50.3 million in 1997, an increase of $4.3 million, or 8.5%. As a percentage of rooms revenue, these expenses remained stable, at 25.8%. Direct operating costs and expenses for food and beverage increased to $64.2 million in 1998 from $62.4 million in 1997, an increase of $1.8 million, or 2.9%, but decreased as a percentage of food and beverage revenues, to 69.8% from 72.4% in 1997. The dollar increase was due to costs associated with the higher volume of sales. Direct operating costs and expenses for other remained stable in 1998 at $3.4 million, but decreased as a percentage of meeting room rental and other revenues to 15.3% from 16.3% in 1997. General, administrative, sales and management service expenses increased to $95.5 million in 1998 from $85.8 million in 1997, an increase of $9.7 million, or 11.3%. Increases in these expenses are primarily attributable to expenses associated with the opening of new hotels in 1997 and 1998. A large portion of expenses associated with new hotel openings are fixed costs in nature. As a result, these expenses rise faster than revenues in the first one to two years of operation. As a percentage of total revenues, these expenses increased to 29.3% in 1998 from 28.4% in 1997. Repairs and maintenance expenses increased to $13.4 million in 1998 from $12.6 million in 1997, by $0.8 million or 6.3%, but decreased slightly as a percentage of total revenues, to 4.1% from 4.2% in 1997. Depreciation and amortization increased to $45.6 million in 1998 from $34.8 million in 1997, by $10.8 million, or 31.0%. As a percentage of total revenues, these expenses increased to 14.0% in 1998 from 11.5% in 1997. The increase was a direct result of the increased level of capital expenditures for the newly opened hotels. Income from operations decreased to $49.4 million in 1998 from $53.1 million in 1997, a decrease of $3.7 million, or 7.0%. The decrease was due to higher costs, including depreciation expense related to the building of new hotels. As a percentage of total revenues, income from operations was 15.2% in 1998 and 17.6% in 1997. 18 Interest expense and amortization of deferred financing fees, net increased to $57.3 million in 1998 from $44.3 million in 1997, an increase of $13.0 million, or 29.3%. The increase was attributable to borrowing for new hotel construction. Income before minority interest, provision for income taxes and extraordinary item decreased to $0.3 million in 1998 from $8.8 million in 1997, a decrease of $8.5 million, or 96.6%. The 1998 results include an $8.2 million gain on sales of property and equipment in connection with the sale of six Holiday Inns in February of 1998 and one Holiday Inn in December of 1998. 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 daily room rate (ADR) 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 daily room rate (ADR) of the Mature Hotels. 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 revenue 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 service 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. 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. 19 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%. LIQUIDITY AND CAPITAL RESOURCES In general, the Company has financed its operations through internal cash flow, loans from financial institutions, the issuance of public debt and equity and the issuance of industrial revenue bonds. The Company's principal uses of cash are to pay operating expenses, to service debt and to fund capital expenditures, new hotel development and permitted distributions to fund some of the taxes allocable to the partners. At January 1, 1999, the Company had $46.2 million of cash and equivalents and also had $6.5 million of marketable securities, compared to $42.0 million in cash and cash equivalents and $12.7 million of marketable securities at the end of 1997. Such amounts are available for development of new hotels and other working capital requirements of the Company. Net cash provided by operating activities increased significantly to $43.5 million at the end of 1998 from $27.8 million at the end of 1997, an increase of $15.7 million, or 56.5%, primarily as the result of changes in interim financing of construction through trade payables. The Company incurred net capital expenditures of $131.2 million and $179.4 million, respectively, for 1998 and 1997. Capital expenditures typically include capital improvements on existing hotel properties and expenditures for development of new hotels. Capital expenditures in 1998 included $111.5 million for new hotel development and $19.7 million for existing hotels. During 1997, capital expenditures for existing hotels and new hotel development were $19.1 million and $160.3 million, respectively. During 1999, the Company expects capital expenditures to approximate $120.8 million, representing approximately $15.5 million for capital improvements on existing hotels and approximately $105.3 million for continued new hotel development. At the end of 1998, total debt was $759.7 million compared with $695.8 million in 1997. The increase is attributable to the hotels opened during 1998 as well as six Scheduled Hotels under construction at the end of 1998. The current portion of long-term debt was $42.3 million at the end of 1998, compared with $61.5 million at the end of 1997. In February 1998, the Company completed the sale of six hotels for $39.4 million, resulting in a gain of approximately $0.2 million. Five of the six hotels sold served as collateral for the 1994 and 1995 Mortgage Notes. Under the terms of these Indentures, the Company provided replacement collateral. On December 31, 1998, the Company completed the sale of an additional hotel property for $16.1 million, resulting in a gain of approximately $8.0 million. The net book value of the hotel's property and equipment at the time of the sale was approximately $8.1 million. In addition to cash received upon closing, the sales price included a note receivable for $11.9 million, with 8.0% interest, due in 1999. The note receivable is secured by the hotel and the personal guarantee of a shareholder of the buyer. This hotel served as collateral under the 1995 Mortgage Notes. Under the terms of the Indenture, 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. 20 The Company estimates that building, pre-opening and other costs of the six Scheduled Hotels will require aggregate funding of approximately $198.0 million from the Company (net of $61.0 million included in construction in progress and other assets at year end). The Company has obtained loans and commitments of approximately $143.0 million (approximately $22 million of which had been drawn at year end) on the Scheduled Hotels and expects the remaining 1999 capital requirements to be funded by cash, cash flow from operations and refinancing of certain existing hotels. 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 1999 capital requirements for the currently planned projects and normal recurring capital improvement projects. The Company distributed or accrued $10.6 million in 1998, and $0.6 million in 1997 to its partner for income taxes. Distributions by the Company must be made in accordance with the provisions of the Indentures. YEAR 2000 STATE OF READINESS John Q. Hammons Hotels, Inc. (the "Company") is actively addressing the impact of the Year 2000 as it relates to the processes of its information technology environment. Potential problems with internal, external and embedded systems are being addressed. Capital budget funds have been set aside for software and hardware upgrades and/or replacements to address Year 2000 issues. 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. The Company is requiring vendors and suppliers to certify Year 2000 compliance of supplied information technology systems and devices. Compliance is defined as no failures or interruptions occurring due to the processing of date information or data between the years through 1999 and years beginning with the year 2000. The Company has reviewed the effects of the upcoming Year 2000 on its computer systems and operations, as well as on those of the hotels it operates. The Company does not anticipate any material impact on its corporate operation, given that the current systems used are believed to be Year 2000 compliant. CORPORATE SYSTEMS HARDWARE--Computer systems were tested for Y2K compliance during the first quarter of 1998. Ninety percent of those systems not compliant were replaced by the end of the third quarter of 1998. The remaining systems were replaced during the fourth quarter of 1998. SOFTWARE--All software systems were tested during the first quarter of 1998. Word processing and spreadsheet software packages were deemed materially compliant and will not be replaced. The accounting and payroll system was not Y2K compliant and was replaced during January, 1998. HOTEL SYSTEMS HARDWARE--Testing of Company owned computer hardware was started during the first quarter of 1998. Ninety percent of all systems have been tested and those systems deemed not Y2K compliant have been identified and have either been replaced at this time or are scheduled for replacement during the first half of 1999. SOFTWARE--Bass Hotels and Resorts use the Encore Property Management System. This system is currently not Y2K compliant but is being upgraded at no expense to the Company. Promus Hotels, Inc. uses the HMS Property Management System. This system is not Y2K compliant and is scheduled for replacement at all non-compliant hotels during the first half of 1999. Radisson Hotels and some Company hotels use the Fidelio Property Management System. This software is Y2K compliant. The operating system on the file servers will be compliant with the installation of software patches at no expense to the Company. These systems are scheduled for upgrade in the year 2000 independent of the Y2K situation. Other Company hotels use the Multi-Systems, Inc. Property Management System, which is Y2K compliant. 21 EMBEDDED SYSTEMS NON-CRITICAL--Fax machines, copiers and similar equipment are generally leased. The majority of these devices have been tested and deemed Y2K compliant. Those failing the Y2K testing will be replaced by the lessor during 1999 under current leasing agreements as required in order to be Y2K compliant. CRITICAL--Systems in this category include elevators, fire control, security, energy management, credit card processing and telecommunications. The Company is currently testing and evaluating these systems. These evaluations are approximately 75% complete with anticipated completion by the end of the first quarter, 1999. TIME KEEPING AND PAYROLL SYSTEMS The Company currently uses Time Resource Management software for time keeping. This software is not Y2K compliant and will be replaced during the second quarter of 1999. Payroll processing is out-sourced and a Y2K compliance certificate from the processor is on file. VENDOR COMPLIANCE CERTIFICATIONS STRATEGIC RELATIONSHIPS--Requests for Y2K compliance have been sent to those vendors which have a strategic relationship with the Company specifically and with the hotels in general. Those compliance letters will be on file in our offices. UTILITY SUPPLIERS--Requests for Y2K compliance have been sent to those suppliers which have a strategic relationship with the Company specifically and with the hotels in general. Those compliance letters will be on file in our offices. COMPLIANCE TESTING INFORMATION TECHNOLOGY VENDOR CERTIFICATION--The Company has received Y2K compliance certifications from the majority of its property management system vendors. All certifications are expected to be on file by the end of the second quarter, 1999. FIELD TESTING--The Company has received Y2K compliance testing software from our property management system vendors. These tests were completed during the fourth quarter, 1998. EVALUATION--The Company will monitor all systems currently in place and those Y2K upgrades that will be installed during the first half of 1999 to insure Y2K integrity. This evaluation will continue throughout the year 2000. EMBEDDED SYSTEMS VENDOR CERTIFICATION--The Company has received Y2K compliance certifications from the majority of its vendors. All certifications are expected to be on file by the end of the first quarter, 1999. FIELD TESTING--The Company or its authorized vendors began conducting Y2K compliance field testing during the fourth quarter of 1998 and will continue testing throughout 1999. EVALUATION--The Company will monitor all systems currently in place and those Y2K upgrades that will be installed during the first half of 1999, to insure Y2K integrity. This evaluation will continue throughout the year 2000. 22 COST OF IMPLEMENTATION CORPORATE OFFICE INFORMATION TECHNOLOGY--Expenses for hardware and software that were directly attributed to Y2K compliance were less than $75,000. EMBEDDED SYSTEMS--The Company has no current expenses directly attributed to Y2K compliance for embedded systems. HOTELS INFORMATION TECHNOLOGY BASS HOTELS & RESORTS--The Company has upgraded hardware and software systems over the last two years that were required from a technology standpoint. Y2K compliance was an ancillary benefit of these upgrades. PROMUS HOTELS, INC.--The Company has allocated less than $15,000 to date for upgrades necessary to meet Y2K compliance at these hotels. EMBEDDED SYSTEMS--The Company has not expended any funds directly attributed to Y2K compliance for these systems. Those upgrades and replacements of equipment that have occurred over the last two years were required to replace equipment that had reached the end of the normal life cycle and not specifically for Y2K compliance. FUTURE COSTS CORPORATE OFFICE Additional software upgrades are anticipated to maintain current technology levels but are not directly attributed to Y2K compliance. HOTELS INFORMATION TECHNOLOGY BASS HOTELS & RESORTS--Hotels operating under this flag (eighteen hotels) will incur minimal costs to replace some computer systems. Average cost per hotel is estimated to be less than $10,000. Hardware requirements will be offset with the transfer of existing Y2K compliant hardware from other hotels that are receiving technology-driven upgrades. PROMUS HOTELs, INC.--Hotels operating under this flag (sixteen hotels) will receive new hardware and software as part of a technology and Y2K compliant upgrade. The estimated cost for this upgrade is approximately $625,000. The balance of the Company's hotels have budgeted approximately $400,000 in capital funds for technology replacements and Y2K compliancy issues. EMBEDDED SYSTEMS--Final evaluation of these systems has not been completed at this time. No major replacements are expected based upon the results of early testing. 23 RISK FACTORS INFORMATION TECHNOLOGY--Based upon current testing results and evaluation of those results, it is believed that all hardware and software systems in the Company's corporate office and hotels will be Y2K compliant by the end of the second quarter, 1999. Risk to the operation of the Company is therefore considered to be low. EMBEDDED SYSTEMS--Complete analysis of all embedded systems has not been completed at this time. Final evaluation is scheduled for the end of the first quarter, 1999, with testing to be completed by the end of the second quarter, 1999. Based upon early reports, risk to the operation of the Company is considered to be low. VENDORS AND SUPPLIERS--The Company does not rely on the services of any one single vendor or supplier that will materially impact its operations. To date, no strategic vendor or supplier has reported that it will not be Y2K compliant by the end of 1999. Based upon these reports, risk to the operations of the Company is considered to be low. CONTINGENCY PLANS INFORMATION TECHNOLOGY HARDWARE--A number of non-critical (time/date critical operations are not dependent on these systems) hardware systems have failed Y2K compliancy testing. These systems are scheduled for replacement during the first half of 1999. Failure to replace these systems will not materially impact the operation of the Company or its hotels. SOFTWARE--Manual operation of guest services, reservations, credit card processing and time keeping systems can be accomplished with existing personnel and equipment. Since all known, non-compliant software systems will be replaced during the first half of 1999, no material impact to the operation of the Company is expected. EMBEDDED SYSTEMS Contingency plans will be finalized during the first quarter of 1999, when evaluation of these systems is complete. All known embedded systems can be manually over-ridden if necessary, in the event of a failure due to a Y2K issue. VENDORS AND SUPPLIERS The Company will use alternative vendors and suppliers in the event any one strategic vendor or supplier is incapable of operating as a result of a Y2K compliance issue. The Company maintains a list of alternative vendors and suppliers. These vendors and suppliers will be certified as Y2K compliant in the event their services are required. 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. 24 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to changes in interest rates primarily as a result of its investing and financing activities. Investing activity includes operating cash accounts and investments, with an original maturity of three months or less, and certain balances of various money market and common bank accounts. The financing activities of the Company are comprised of long-term fixed and variable rate debt obligations utilized to fund business operations and maintain liquidity. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for the Company's long-term fixed and variable rate debt obligations as of January 1, 1999:
EXPECTED MATURITY DATE (IN MILLIONS) 1999 2000 2001 2002 2003 Thereafter Total Fair Value (d) Long-Term Debt (a) $300 Million 1st Mortgage Notes $ -- $ -- $ -- $ -- $ -- $300 $300 $313 Average interest rate (b) 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% $90 Million 1st Mortgage Notes $ -- $ -- $ -- $ -- $ -- $ 90 $ 90 $ 94 Average interest rate (b) 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% Other fixed-rate debt obligations $ 41 $ 6 $ 13 $ 30 $ 20 $213 $323 $323 Average interest rate (b) 8.8% 8.4% 8.2% 8.8% 8.7% 8.7% 8.7% Other variable-rate debt obligations $ 1 $ 1 $ 7 $ 10 $ 3 $ 25 $ 47 $ 47 Average interest rate (c) 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
(a) Includes amounts reflected as long-term debt due within one year. (b) For the long-term fixed rate debt obligations, the weighted average interest rate is based on the stated rate of the debt that is maturing in the year reported. The weighted average interest rate excludes the effect of the amortization of deferred financing costs. (c) For the long-term variable rate debt obligations, the weighted average interest rate assumes no changes in interest rates and is based on the variable rate of the debt, as of January 1, 1999, that is maturing in the year reported. The weighted average interest rate excludes the effect of the amortization of deferred financing costs. (d) The fair values of long-term debt obligations approximate their respective historical carrying amounts, except with respect to the $300 million First Mortgage Notes and the $90 million First Mortgage Notes. The fair value of the First Mortgage Notes issued is estimated by obtaining quotes from brokers. 25 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 1, 1999 and January 2, 1998 and the related consolidated statements of operations, changes in minority interest and stockholders' equity and cash flows for each of the three fiscal years ended January 1, 1999, January 2, 1998 and January 3, 1997. 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 1, 1999 and January 2, 1998 and the results of their operations and their cash flows for each of the three fiscal years ended January 1, 1999, January 2, 1998 and January 3, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Cincinnati, Ohio February 17, 1999 26 EX-23.1 7 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.1 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report 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 March 31, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Annual Report on Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JAN-01-1999 JAN-03-1998 JAN-01-1999 46,233 6,533 14,389 206 1,205 69,243 956,294 194,860 876,486 102,903 717,460 0 0 63 17,784 876,486 0 326,130 0 122,163 154,518 0 57,286 96 120 (24) 0 (637) 0 (661) (0.10) (0.10)
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