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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 3, 2003
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 43-1695093
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 John Q. Hammons Parkway, Ste. 900
Springfield, Missouri 65806
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 864-4300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Class A Common Stock American Stock Exchange
$0.01 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. ____
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of the 3,362,865 shares of Class A Common Stock
held by non-affiliates of the Registrant was approximately $20,681,620 based on
the $6.15 closing price on the American Stock Exchange for such stock on June
28, 2002.
Number of shares of the Registrant's Class A Common Stock outstanding as
of February 28, 2003: 4,789,729.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended
January 3, 2003 are incorporated by reference into Part II. Portions of the
proxy statement for the annual shareholders' meeting to be held on May 13, 2003
are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
We use the terms we, us, our and other similar references to mean (i) John
Q. Hammons Hotels, Inc., a Delaware corporation, (ii) Hammons, Inc., a Missouri
corporation, (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.
References to the term "Partnership" mean 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.
OVERVIEW
We are a leading independent owner and manager of upscale, full service
hotels located primarily in secondary markets. We own and manage 47 hotels
located in 20 states, containing 11,629 guest rooms or suites. We also manage
nine additional hotels located in five states, containing 2,075 guest rooms or
suites. The majority of these existing 56 hotels operate under the Embassy
Suites Hotels, Holiday Inn and Marriott trade names. Most of our hotels are
located near a state capitol, university, convention center, corporate
headquarters, office park or other stable demand generator.
We own and operate upscale hotels designed to appeal to a broad range of
hotel customers, including frequent business travelers, groups, conventions and
leisure travelers. Our in-house design staff individually designed each of our
hotels and most contain an expansive multi-storied atrium, large indoor water
fountains, lush plantings and comfortable lounge areas. In addition, our hotels
typically include exterior meeting facilities that can be readily adapted to
accommodate both large and small meetings, conventions or trade shows. Our 17
Embassy Suites Hotels are all-suite hotels which appeal to the traveler needing
or desiring greater space and specialized services. Our 18 Holiday Inn hotels
are affordably priced and designed to attract value-conscious leisure travelers
desiring quality accommodations. In addition, we own or manage 17 hotels
operating under leading brands including Marriott, Radisson, Sheraton, Hampton
Inn and Suites and Homewood Suites, as well as three independent hotels and one
non-franchise resort hotel.
We coordinate management of our hotels from our headquarters in
Springfield, Missouri, by our executive team. Six regional vice presidents
supervise a group of general managers in day-to-day operations. Centralized
management services and functions include sales and marketing, purchasing,
financial controls, architecture and design, human resources, legal and hotel
operations. Through these centralized services, we realize significant cost
savings due to economies of scale.
We currently have no hotels under construction and no plans to develop new
hotels for the foreseeable future. During 2000, we entered into a five-year
management contract with John Q. Hammons whereby we will provide internal
administrative, architectural design, purchasing and legal services to Mr.
Hammons in conjunction with the development of hotels in an amount not to exceed
1.5% of the total development costs of any single hotel for the opportunity to
manage the hotel upon opening and the right to purchase the hotel in the event
it is offered for sale.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, regarding, among other things, our business strategy,
prospects and financial position. These statements contain the words "believes,"
"anticipates," "estimates," "expects," "projects," "intends," "may," "will," and
similar words. These forward looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results to be
materially different from any future results expressed or implied by such
forward looking statements. Such factors include, among others, the following:
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- general economic conditions;
- competition;
- changes in operating costs, particularly energy, insurance and labor
costs;
- unexpected events, such as the September 11, 2001 terrorist attacks;
- risks of hotel operations, such as hotel room supply exceeding
demand, increased energy and other travel costs and general industry
downturns;
- seasonality of the hotel business;
- cyclical over-building in the hotel and leisure industry;
- requirements of franchise agreements, including the right of some
franchisors to immediately terminate their respective agreements if
we breach certain provisions; and
- costs of complying with environmental laws.
These risks are uncertainties and, along with the risk factors discussed
below, should be considered in evaluating any forward looking statements
contained in this Form 10-K.
We undertake no obligation to update or revise publicly any
forward-looking statement, whether as a result of new information, future events
or otherwise, other than as required by law.
RISKS RELATING TO OUR BUSINESS
WE MAY BE ADVERSELY AFFECTED BY THE LIMITATIONS IN OUR FRANCHISE
AGREEMENTS.
Approximately 90% of our hotels operate pursuant to franchise agreements
with nationally recognized hotel brands. The franchise agreements generally
contain specific standards for, and restrictions and limitations on, the
operation and maintenance of a hotel in order to maintain uniformity within the
franchisor system. Standards are often subject to change over time. Compliance
with any such new standards could cause us to incur significant expenses or
capital expenditures.
If we do not comply with standards or terms of the franchise agreements,
our franchise licenses could be cancelled after the applicable cure period.
While none of our franchisors has ever terminated or failed to renew one of our
agreements, terminating or changing the franchise affiliation of a hotel could
require us to incur significant expenses or capital expenditures. Moreover, the
loss of a franchise license could have a material adverse effect upon the
operations or the underlying value of the hotel covered by the franchise because
of the loss of associated name recognition, marketing support and centralized
reservation systems provided by the franchisor.
Our current franchise agreements terminate at various times and have
differing remaining terms. Although some are subject to renewal, many of our
franchise agreements are set to expire before the notes mature. As a condition
to renewal, the franchise agreements frequently contemplate a renewal
application process, which may require substantial capital improvements to be
made to the hotel. Significant unexpected capital expenditures could adversely
affect our cash flow and our ability to make payments on our indebtedness.
MR. HAMMONS' CONTROL OF US CREATES POTENTIAL FOR SIGNIFICANT CONFLICTS OF
INTEREST.
Through his ownership of all of our Class B Common Stock, and 269,100
shares of our Class A Common Stock, Mr. Hammons controls our activities. In
addition, since Mr. Hammons beneficially owns all of the LP Units, representing
75.94% of the total Partnership units, he will decide any matters submitted to a
vote of the Partnership partners. Certain decisions concerning our operations or
financial structure may present conflicts
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of interest between Mr. Hammons and our other shareholders or holders of our
notes. In addition, Mr. Hammons, as the holder of all of the LP Units, may
suffer different and/or more adverse tax consequences than we do upon the sale
or refinancing or some of the owned hotels as a result of unrealized gains
attributable to certain owned hotels. Therefore, it is unlikely that an owned
hotel will be sold or refinanced if such a transaction would result in an
adverse tax consequence to Mr. Hammons if we are unable to make sufficient
distributions to Mr. Hammons to pay those taxes, regardless of whether such a
sale or refinancing might otherwise be in our best interest.
Mr. Hammons also (1) owns hotels that we manage; (2) owns an interest in a
hotel management company that provides accounting and other administrative
services for all of our hotels; (3) owns a 50% interest in the entity from which
we lease our corporate headquarters; (4) has an agreement whereby we pay up to
1.5% of his in-house development costs for new hotels in exchange for the
opportunity to manage the hotels and to purchase them under certain
circumstances; (5) leases space to us in two trade centers owned by him that
connect with two of our hotels; (6) has the right to require the redemption of
his LP Units; (7) utilizes our administration and other services for his outside
business interests, for which he reimburses us; (8) supplements the compensation
of two of our employees; and (9) owns the real estate underlying three of our
hotels, which we lease from him. We describe these arrangements in further
detail under "Certain Relationships and Related Transactions." In the event that
Mr. Hammons experienced material adverse changes in his outside business
interests, we could receive negative publicity as the result of his close ties
to us, and it is possible the market price of our stock and the rating of our
debt could be affected.
WE DEPEND ON CERTAIN KEY MEMBERS OF OUR EXECUTIVE MANAGEMENT.
We are dependent on certain key members of our executive management, a
loss of whose services could have a material effect on our business and future
operations. Some of our executive officers, including our president, Lou
Weckstein, spend a portion of their time performing services for Mr. Hammons
unrelated to our business.
COMPLIANCE WITH ENVIRONMENTAL LAWS MAY ADVERSELY AFFECT OUR FINANCIAL
CONDITION.
Our hotel properties are subject to various federal, state and local
environmental laws. Under these laws, courts and governmental agencies have the
authority to require an owner of a contaminated property to clean up the
property, even if the owner did not know of and was not responsible for the
contamination. In addition to the costs of cleanup, contamination can affect the
value of a property and, therefore, an owner's ability to borrow funds using the
property as collateral. Under environmental laws, courts and government agencies
also have the authority to require a person who sent waste to a waste disposal
facility, like a landfill or an incinerator, to pay for the cleanup of that
facility if it becomes contaminated and threatens human health or the
environment. Court decisions have established that third parties may recover
damages for injury caused by contamination. For instance, a person exposed to
asbestos while staying in a hotel may seek to recover damages if he suffers
injury from the asbestos.
We could be responsible for the costs discussed above if one or more of
our properties are found to be contaminated or to have caused contamination. The
costs to clean up contaminated property, to defend against a claim or to comply
with environmental laws, could be material and could affect our financial
performance. In addition, under the laws of many states, contamination on a
property may give rise to a lien on the property for cleanup costs. In several
states, this lien has priority over all existing liens including those of
existing mortgages.
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Historic uses of some of our properties have involved
industries or businesses which could have used or produced hazardous materials
or generated hazardous waste. In the regular course of business, our hotels
might use and store small quantities of paints, paint thinners, lubricants, pool
supplies, and commercial cleaning compounds which, in some instances, may be
subject to federal and state regulations. Small quantities of waste oil, medical
waste, and other waste materials may also be generated at some of our
properties. Additionally, some of our properties contain or may have contained
underground or above ground storage tanks which are regulated by federal, state
and local environmental laws.
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All of our properties have been subject to environmental site assessments,
or ESAs, prepared by independent third-party professionals. These ESAs were
intended to evaluate the environmental conditions of these properties and
included a site visit, a review of certain records and public information
concerning the properties, the preparation of a written report and, in some
cases, invasive sampling. We obtained the ESAs before we acquired or built most
of our hotels to help us identify whether we might be responsible for clean-up
costs or other environmental liabilities. The ESAs on our properties did not
reveal any environmental conditions that are likely to have a material adverse
effect on our business, assets, results of operations or liquidity. However,
ESAs do not always identify all potential problems or environmental liabilities.
Consequently, we may have material environmental liabilities of which we are
unaware. Moreover, it is possible that future laws, ordinances or regulations
could impose material environmental liabilities, or that the current
environmental condition of our properties could be adversely affected by third
parties or by the condition of land or operations in the vicinity of the
properties.
ASPECTS OF OUR OPERATIONS ARE SUBJECT TO GOVERNMENT REGULATION, AND
CHANGES IN GOVERNMENT REGULATIONS MAY HAVE SIGNIFICANT EFFECTS ON OUR BUSINESS.
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. We believe that
our hotels are substantially in compliance with these requirements or, in the
case of liquor licenses, that they have or will promptly obtain the appropriate
licenses. Compliance with, or changes in, these laws could reduce the revenue
and profitability of our hotels and could otherwise adversely affect our
revenues, results of operations and financial condition.
Under the Americans with Disabilities Act, or ADA, all public
accommodations are required to meet federal requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA-required
upgrades to our hotels, a determination that our hotels are not in compliance
with the ADA could result in a judicial order requiring compliance, imposition
of fines or an award of damages to private litigants.
MOISTURE RELATED ISSUES RELATED TO DEFECTIVE WINDOWS AT SOME OF OUR
PROPERTIES HAVE AFFECTED OUR OPERATING RESULTS, AND, IF THE PROBLEMS ARE MORE
WIDESPREAD THAN CURRENTLY APPARENT, COULD ADVERSELY AFFECT OUR FUTURE RESULTS OF
OPERATIONS.
We discovered water intrusion through defective windows at some of our
hotels. The sealant at the base of the windows provided by several manufacturers
had shrunk. This shrinkage allowed moisture into the space between the exterior
and interior walls. Because of the Exterior Finish Insulation Systems, or EFIS,
used in the construction of our hotels, there is no escape path for any moisture
that does leak in. The EFIS construction provides a "stucco" finish and is
commonly used throughout the lodging industry. We conducted an inspection of all
of our properties, and found shrinkage at 16 hotels, of which 14 had sustained
water intrusion damage related to the moisture, including six hotels with severe
damage.
We are pursuing claims against the window manufacturers and our insurance
carrier. The insurance carrier has denied coverage on a portion of our claims
and we have filed suit to enforce our claim. One window manufacturer is in the
process of repairing its windows and two others have agreed to do so. The
remaining two manufacturers have told us that they will not cover the costs of
window repair or replacement. We intend to vigorously pursue our claims against
the insurance company and the window manufacturers, but there is no assurance
that we will prevail.
We have paid or reserved all costs incurred and expected to be incurred in
connection with the 16 hotels at which we discovered problems. Virtually all of
our properties include the same type of windows. While we have found no evidence
of any water damage in any other locations, problems could develop with the
windows in other hotels in the future. If such problems were to become
widespread, and we were unable to collect from the manufacturers or our
insurance carrier, the cost would be significant and could adversely impact our
cash flow and results of operations.
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RISKS RELATED TO OUR DEBT
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We have a substantial amount of indebtedness. As of January 3, 2003, we
had total indebtedness of $806.3 million. Our substantial indebtedness could,
among other things:
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain other financing to fund future working
capital, capital expenditures and other general corporate
requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, reducing the
availability of our cash flow to fund working capital and other
expenditures;
- limit our flexibility in planning for, or reacting to, changes in
our business and industry;
- place us at a competitive disadvantage compared to our competitors
that have less debt; and
- along with the financial and other restrictive covenants in our
indebtedness, limit, among other things, our ability to borrow
additional funds.
THE TERMS OF OUR DEBT PLACE RESTRICTIONS ON US, WHICH REDUCE OPERATIONAL
FLEXIBILITY AND CREATE DEFAULT RISKS.
The documents governing the terms of our notes and some of the mortgage
debt on our properties that are not part of the collateral hotels contain
covenants that place restrictions on us and certain of our activities,
including:
- acquisitions, mergers and consolidations;
- the incurrence of additional indebtedness;
- the incurrence of liens;
- capital expenditures;
- the payment of dividends; and
- transactions with affiliates.
The restrictive covenants in the indenture and the documents governing our
mortgage debt reduce our flexibility in conducting our operations and will limit
our ability to engage in activities that may be in our long-term best interest.
In addition, certain covenants in the mortgage debt documents for some of the
non-collateral hotel properties require us to meet financial performance tests.
Our failure to comply with these restrictive covenants constitutes an event of
default that, if not cured or waived, could result in the acceleration of the
debt which we may be unable to repay.
TO SERVICE OUR INDEBTEDNESS, WE REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness and to
fund planned capital expenditures will depend on our ability to generate cash in
the future. This, to a certain extent, is subject to general economic,
financial, competitive and other factors that are beyond our control.
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WE CANNOT ASSURE YOU THAT WE WILL CONTINUE TO RECEIVE REVENUES FROM HOTELS
WE MANAGE.
We receive a portion of our revenues from managing hotels Mr. Hammons
owns. We have management agreements with respect to the hotels owned by Mr.
Hammons. Each of the management agreements with the nine hotels owned by Mr.
Hammons or entities controlled by Mr. Hammons are terminable within either 30 or
60 days. We cannot assure you that we will continue to receive revenues with
respect to any of these hotels.
RISKS RELATED TO THE LODGING INDUSTRY
THE LODGING INDUSTRY IS HIGHLY COMPETITIVE.
Competitive factors in the lodging industry include, among others,
reasonableness of room rates, quality of accommodations, service levels and
convenience of locations. We generally operate in areas that contain numerous
other competitors. There can be no assurance that demographic, geographic or
other changes in markets will not adversely affect the convenience or
desirability of the locales in which our hotels operate, competing hotels will
not pose greater competition for guests than presently exists, or that new
hotels will not enter such locales. New or existing competitors could offer
significantly lower rates or greater conveniences, services or amenities or
significantly expand, improve or introduce new facilities in markets in which we
compete, adversely affecting our operations.
INTERNATIONAL EVENTS, INCLUDING THE EVENTS OF SEPTEMBER 11, 2001, THE
CONTINUED THREAT OF TERRORISM, THE ONGOING WAR AGAINST TERRORISM AND THE
CONTINUED CONFLICT WITH IRAQ, HAVE AFFECTED AND WILL CONTINUE TO AFFECT OUR
INDUSTRY AND OUR RESULTS OF OPERATIONS.
The terrorist attacks of September 11th caused a significant decrease in
our hotels' occupancy and average daily rate due to disruptions in business and
leisure travel patterns, and concerns about travel safety. Our occupancy and
revenue per available room (RevPAR) were below historical levels by as much as
26 percentage points and 35%, respectively, in the week immediately after the
terrorist attacks and have rebounded to prior years' levels since. Additional
similar events could have further material adverse effects on the hotel industry
and our operations.
WE ARE SUBJECT TO THE RISKS OF HOTEL OPERATIONS.
Our hotels are subject to all of the risks common to the hotel industry.
These risks could adversely affect hotel occupancy and the rates that can be
charged for hotel rooms as well as hotel operating expenses, and generally
include, among others:
- competition from other hotels;
- increases in supply of hotel rooms that exceed increases in demand;
- increases in energy costs and other travel expenses that reduce
business and leisure travel;
- adverse effects of declines in general and local economic activity;
- adverse effects of a downturn in the hotel industry; and
- risks associated with the ownership of hotels and real estate, as
discussed below.
WE WILL ALSO ENCOUNTER RISKS THAT MAY ADVERSELY AFFECT REAL ESTATE
OWNERSHIP IN GENERAL.
Our investments in hotels are subject to the numerous risks generally
associated with owning real estate, including among others:
- adverse changes in general or local economic or real estate market
conditions;
- changes in zoning laws;
- changes in traffic patterns and neighborhood characteristics;
- increases in assessed valuation and tax rates;
- increases in the cost of property insurance;
- governmental regulations and fiscal policies;
- the potential for uninsured or underinsured property losses;
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- the impact of environmental laws and regulations; and
- other circumstances beyond our control.
Moreover, real estate investments are relatively illiquid, and generally
cannot be sold quickly. We may not be able to vary our portfolio promptly in
response to economic or other conditions. The inability to respond promptly to
changes in the performance of our investments could adversely affect our
financial condition.
OPERATIONS
Our management team at our headquarters in Springfield, Missouri,
coordinates management of our hotel network. This management team is responsible
for managing our day-to-day financial needs, including internal accounting
audits, insurance plans and business contract review, and oversees the financial
budgeting and forecasting for our hotels, as well as analyzing the financial
feasibility of new hotel developments and identifying new systems and procedures
to employ within our hotels to improve efficiency and profitability. The
management team also coordinates the sales force for each of our hotels,
designing sales training programs, tracking future business under contract, and
identifying, employing and monitoring marketing programs aimed at specific
target markets, and is responsible for interior design of all hotels and each
hotel's product quality, and directly oversees the detailed refurbishment of
existing operations.
Central management utilizes information systems that track each of our
hotel's daily occupancy, average room rate, rooms revenues and food and beverage
revenues. By having the latest information available at all times, we are 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 hotel.
Creating operating, cost and guest service efficiencies in each hotel is a
top priority. With a total of 56 hotels under management, we believe we are able
to realize significant cost savings due to economies of scale. By leveraging the
total hotels/rooms under management, we are able to secure volume pricing from
vendors not available to smaller hotel companies. We employ a systems trainer
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 of our hotels to verify that
our high level of operating standards are being met. Our franchisors maintain
rigorous inspection programs in which chain representatives visit their
respective 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.
We conduct all of our business operations through the Partnership and its
subsidiaries. Mr. Hammons beneficially owns all 294,100 shares of our Class B
Common Stock, and 269,100 shares of our Class A Common Stock, representing 76.8%
of the combined voting power of both classes of our common stock. We are the
sole general partner of the Partnership through our ownership of all 5,083,829
General Partner units, or the GP Units, representing 24.06% of the total equity
in the Partnership. Mr. Hammons beneficially owns all 16,043,900 limited
partnership units of the Partnership, or the LP Units, representing 75.94% of
the total equity in the Partnership. Our Class A Common Stock represents
approximately 21% of the total equity of the Partnership, and the Class B Common
Stock and LP Units beneficially owned by Mr. Hammons represent approximately 79%
of the total equity in the Partnership.
Our executive offices are located at 300 John Q. Hammons Parkway, Suite
900, Springfield, Missouri 65806 and our telephone number is (417) 864-4300. We
are a Delaware corporation formed on September 29, 1994. Our website address is
www.jqhhotels.com. We post all of our Form 10-K, Form 10-Q and Form 8-K filings
on our website as promptly as practicable after filing with the SEC.
SALES AND MARKETING
We market our hotels through national marketing programs and local sales
managers and a director of sales at each of our hotels. While we make periodic
modifications to our marketing concept in order to address
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differences and maintain a sales organization structure based on market needs
and local preferences, we generally utilize the same major campaign concept
throughout the country. We develop the concepts at our management headquarters,
while modifications are implemented by our hotels' regional vice presidents and
local sales force, all of whom are experienced in hotel marketing. The sales
force reacts promptly to local changes and market trends in order to customize
marketing programs to meet each hotel's competitive needs. In addition, the
local sales force is responsible for developing and implementing marketing
programs targeted at specific customer segments within each market. We require
that each of our sales managers complete an extensive sales training program.
Our 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. We believe that business travelers are attracted
to our hotels because of their convenient locations in state capitals, their
proximity to corporate headquarters, plants, convention centers or other major
facilities, the availability of ample meeting space and our high level of
service. Our sales force markets to organizations which consistently produce a
high volume of room nights and which have a significant number of individuals
traveling in our operating regions. We also target groups and conventions
attracted by our hotels' proximity to convention or trade centers which are
often adjacent to our hotels. Our hotels' group meetings logistics include
flexible space readily adaptable to groups of varying size, high-tech
audio-visual equipment and on-site catering facilities. We believe that suburban
convention centers attract more convention sponsors due to lower prices than
larger, more cosmopolitan cities. In addition to the business market, our
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 our atrium hotels appealing.
We advertise primarily through direct mail, magazine publications,
directories and newspaper advertisements, all of which focus on value delivered
to and perceived by the guest. We have 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.). Our marketing efforts focus primarily on
business travelers who we estimate account for approximately 50% of the rooms
rented in our hotels.
Our franchise hotels utilize the centralized reservation systems of our
franchisors, which we believe are among the more advanced reservation systems in
the hotel industry. The franchisors' reservation systems receive reservation
requests entered (1) on terminals located at all of their respective franchises,
(2) at reservation centers utilizing 1-800 phone access and (3) 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. We believe that these systems are effective in directing
customers to our franchise hotels.
FRANCHISE AGREEMENTS
We enter into non-exclusive franchise licensing agreements with
franchisors we believe are the most successful brands in the hotel industry. The
term of an individual franchise agreement for a hotel typically is 20 years. Our
franchise agreements allow us 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 our franchise agreements allows
us the flexibility to continue to develop properties with the brands that have
shown success in the past or to operate hotels in conjunction with other brand
names.
Holiday Inn. Our franchise agreements grant us a nonassignable,
non-exclusive license to use Holiday Inn's 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. We
pay monthly fees based on a percentage of gross revenues. The initial terms of
each of our Holiday Inn franchise agreements is 20 years with varying renewal
options and extension terms.
Embassy Suites Hotels. Our franchise agreements grant us a nonassignable,
non-exclusive license to use the Embassy Suites Hotels service mark and
computerized reservation network. The franchisor maintains the
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right to improve and change the reservation system for the purpose of making it
more efficient, economical and competitive. We pay monthly fees 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
initial term of each of our Embassy Suites Hotels franchise agreements is 20
years with varying renewal options and extension terms.
Other Franchisors. The franchise agreements with other franchisors not
listed above are similar to those described above in that they are
nonassignable, non-exclusive licenses to use the franchisor's service mark and
computerized reservation network. Payments and terms of agreements vary based on
specific negotiations with the franchisor.
COMPETITION
Each of our hotels competes in its market area with numerous other full
service hotels operating under various lodging brands 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 our hotels in their respective markets. There is, however,
no single competitor or group of competitors of our hotels that is consistently
located nearby and competing with most of our 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
Insurance. To supplement our self insurance programs, we provide umbrella,
property, auto, commercial liability and worker's compensation insurance to our
hotels under blanket policies. Insurance expenses for our hotels were
approximately $9.2 million, $7.3 million and $3.6 million in 2002, 2001 and
2000, respectively. In the three years ended December 29, 2000, we experienced
favorable trends in insurance expenses, due to lower rates and better claims
experiences, and because we were able to engage in favorable buyouts of several
earlier self-insured years. Since that time, our insurance expenses increased as
the result of the now fully-insured nature of most of our insurance programs and
changes in the market subsequent to the terrorist attacks on September 11, 2001.
Regulations. 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. We
believe that each of our hotels has the necessary permits and approvals to
operate their respective businesses.
Our hotels and any newly developed or acquired hotels must comply with
Title III of the Americans with Disabilities Act, or the ADA, to the extent that
such properties are "public accommodations" and/or "commercial facilities" as
defined by the ADA. Noncompliance could result in a judicial order requiring
compliance, an imposition of fines or an award of damages to private litigants.
Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of Asbestos Containing Materials, or
ACMs, when ACMs are in poor condition or when property with ACMs is undergoing
building, repair, 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 or other damage
associated with ACMs. Several of the owned hotels contain or may contain ACMs,
generally in sprayed-on ceiling treatments, floor tiles, or in roofing
materials. Several of our hotels have implemented asbestos management plans.
Moreover, in each hotel with confirmed or potential ACMs, no removal of asbestos
from the owned hotels has been recommended and we have no plans to undertake any
additional removal, beyond the removal that has already occurred.
Our 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.
See "Risk Factors - Risks Relating to Our Business - Compliance with
environmental laws may adversely affect our financial condition" for a more
detailed description of environmental regulations affecting our business.
10
EMPLOYEES
We employ over 5,900 full time employees, approximately 225 of whom are
members of labor unions. We believe 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 88 hotels on a nationwide basis, primarily under the
Holiday Inn and Embassy Suites Hotels trade names.
Lou Weckstein is President of the Company. Prior to joining the Company in
September 2001, Mr. Weckstein served for ten years as Senior Vice President,
Hotel Operations, for Windsor Capital Group, a Los Angeles-based hotel
management and development company. Prior to Windsor Capital Group, Mr.
Weckstein served eight years as Vice President of Operations for Embassy Suites,
Inc. Over his career, Mr. Weckstein spent numerous years as Vice
President-Operations for Ramada Inns, Inc. and Vice President-Operations for
Sheraton Inns, Inc. He began his career in the hospitality industry as a hotel
manager in Cleveland, Ohio.
Paul E. Muellner is Chief Financial Officer 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.
Debra M. Shantz is General 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 and Corporate Controller 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.
L. Scott Tarwater is Vice President, Sales and Marketing, of the
Company. He joined the Company in September 2000 from Windsor Capital
Group, in Los Angeles, California, where he served as Senior Vice
President, Sales and Marketing, for ten years. Prior to that time, Mr.
Tarwater served as Senior Director, Sales and Marketing, for Embassy
Suites, Inc., Irving, Texas.
John D. Fulton is Vice President, Interior Design, 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.
Kent S. Foster is Vice President, Human Resources, of the Company.
He joined the Company in 1999 from Dayco Products, Inc. in Michigan where
he served as Director and Manager, Human Resources. Prior thereto, Mr.
Foster served as Assistant Vice President and Director, Human Resources,
for Great Southern Savings & Loan Association, Springfield, Missouri.
11
William T. George, Jr., is Vice President, Capital Planning and
Asset Management, of the Company. He joined the Company in 1994 from
Promus Hotel Corporation, where he had been Director of Capital
Refurbishment.
ITEM 2. PROPERTIES.
We lease our headquarters in Springfield, Missouri, from a Missouri
company of which Mr. Hammons is a 50% owner. In 2002, we made aggregate annual
lease payments of approximately $253,000 to that company. We own the land on
which 35 of our hotels are located, while 12 of our hotels are subject to
long-term ground leases. We lease from Mr. Hammons the real estate on which
three of these hotels are located. We describe these leases under "Certain
Relationships and Related Transactions - Mr. Hammons."
DESCRIPTION OF HOTELS - GENERAL
Our hotels are located in 20 states and contain a total of 11,629 rooms
and suites. A majority of our hotels operate under the Holiday Inn, Embassy
Suites Hotels and Marriott trade names. Most of our 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.
We believe that the presence of adjacent convention centers provides
incremental revenues for our 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 our hotels has a
restaurant/catering service on its premises which provides an essential amenity
to the convention trade. We choose not to lease out the restaurant business to
third-party caterers or vendors since we consider the restaurant business an
important component of securing convention business. We own and manage all of
the restaurants in our hotels specifically to maintain direct quality control
over a vital aspect of the convention and hotel business. We also derive
significant revenue and operating profit from food and beverage sales due to our
ownership and management of all of the restaurants in our hotels. We believe
that our food and beverage sales are more profitable than those of our
competitors due to the amount of catering business provided to conventions at
our hotels.
We retain responsibility for all aspects of the day-to-day management of
each of our 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 we own. We typically refurbish individual hotels every
four to six years. We have spent an average per year of approximately $24.0
million in the last five years on the owned hotels and expect to spend
approximately the same amount in 2003 on refurbishment of the owned hotels.
OWNED HOTELS
The following table sets forth certain information concerning location,
franchise/name, number of rooms/suites, description and opening date for each of
our hotels:
NUMBER OF OPENING
LOCATION FRANCHISE/NAME ROOMS/SUITES DESCRIPTION DATE
- ---------------------- -------------- ------------ ---------------------- -------
Montgomery, AL........ Embassy Suites 237 Atrium; Meeting Space: 15,000 sq. ft.(c) 8/95
Tucson, AZ............ Holiday Inn 301 Atrium; Meeting Space: 14,000 sq. ft. 11/81
Tucson, AZ............ Marriott 250 Atrium; Meeting Space: 11,500 sq. ft. 12/96
Little Rock, AR....... Embassy Suites 251 Atrium; Meeting Space: 14,000 sq. ft. 8/97
Springdale, AR........ Holiday Inn 206 Atrium; Meeting Space: 18,000 sq. ft. 7/89
Convention Center: 29,280 sq. ft.
Springdale, AR........ Hampton Inn & Suites 102 Meeting Space: 400 sq. ft. 10/95
Bakersfield, CA....... Holiday Inn Select 258 Meeting Space: 9,735 sq. ft.(c) 6/95
Monterey, CA.......... Embassy Suites 225 Atrium; Meeting Space: 13,700 sq. ft. 11/95
12
NUMBER OF OPENING
LOCATION FRANCHISE/NAME ROOMS/SUITES DESCRIPTION DATE
- ---------------------- -------------- ------------ ---------------------- -------
Sacramento, CA........ Holiday Inn 362 Meeting Space: 9,000 sq. ft. 8/79
San Francisco, CA..... Holiday Inn 279 Meeting Space: 9,000 sq. ft. 6/72
Denver, CO (a)........ Holiday Inn 256 Atrium; Trade Center: 66,000 sq. ft.(b) 10/82
(International
Airport)
Denver, CO............ Holiday Inn 235 Meeting Space: 20,000 sq. ft. 12/80
(Northglenn)
Fort Collins, CO...... Holiday Inn 258 Atrium; Meeting Space: 12,000 sq. ft. 8/85
Coral Springs, FL..... Marriott 224 Atrium; Meeting Space: 5,326 sq. ft. 5/99
Convention Center: 12,800 sq. ft.
St. Augustine, FL..... Renaissance 301 Atrium; Meeting Space: 9,000 sq. ft.(c) 5/98
Tampa, FL............. Embassy Suites 247 Atrium; Meeting Space: 18,000 sq. ft. 1/98
Cedar Rapids, IA...... Collins Plaza 221 Atrium; Meeting Space: 11,250 sq. ft. 9/88
Davenport, IA......... Radisson 221 Atrium; Meeting Space: 7,800 sq. ft.(c) 10/95
Des Moines, IA........ Embassy Suites 234 Atrium; Meeting Space: 13,000 sq. ft. 9/90
Des Moines, IA........ Holiday Inn 288 Atrium; Meeting Space: 15,000 sq. ft. 1/87
Topeka, KS............ Capitol Plaza 224 Atrium; Meeting Space: 7,000 sq. ft.(c) 8/98
Bowling Green, KY..... Holiday Inn 218 Atrium: Meeting Space: 4,000 sq. ft.(c) 8/95
Branson, MO........... Chateau on the Lake 301 Atrium; Meeting Space: 40,000 sq. ft. 5/97
Jefferson City, MO.... Capitol Plaza 255 Atrium; Meeting Space: 14,600 sq. ft. 9/87
Joplin, MO............ Holiday Inn 262 Atrium; Meeting Space: 8,000 sq. ft. 6/79
Trade Center: 32,000 sq. ft.(b)
Kansas City, MO (a)... Embassy Suites 236 Atrium; Meeting Space: 12,000 sq. ft. 4/89
Kansas City, MO (a)... Homewood Suites 117 Extended Stay 5/97
Springfield, MO....... Holiday Inn 188 Atrium; Meeting Space: 3,020 sq. ft. 9/87
Omaha, NE............. Embassy Suites 249 Atrium; Meeting Space: 13,000 sq. ft. 1/97
Reno, NV.............. Holiday Inn 283 Meeting Space: 8,700 sq. ft. 2/74
Albuquerque, NM....... Marriott 310 Atrium; Meeting Space: 12,300 sq. ft. 12/86
Charlotte, NC......... Renaissance Suites 275 Atrium; Meeting Space: 17,400 sq. ft. 12/99
Greensboro, NC (a).... Embassy Suites 219 Atrium; Meeting Space: 10,250 sq. ft. 1/89
Greensboro, NC (a).... Homewood Suites 104 Extended Stay 8/96
Raleigh-Durham, NC.... Embassy Suites 273 Atrium; Meeting Space: 20,000 sq. ft. 9/97
Oklahoma City, OK..... Renaissance 311 Atrium; Meeting Space: 10,150 sq. ft.(c) 1/00
Portland, OR (a)...... Holiday Inn 286 Atrium; Trade Center: 37,000 sq. ft.(b) 4/79
Portland, OR (a)...... Embassy Suites 251 Atrium; Meeting Space: 11,000 sq. ft. 9/98
Columbia, SC ......... Embassy Suites 214 Atrium; Meeting Space: 13,000 sq. ft. 3/88
Greenville, SC........ Embassy Suites 268 Atrium; Meeting Space: 20,000 sq. ft. 4/93
North Charleston, SC (a) Embassy Suites 255 Atrium; Meeting Space: 3,000 sq. ft.(c) 2/00
Beaumont, TX.......... Holiday Inn 253 Atrium; Meeting Space: 12,000 sq. ft. 3/84
Dallas, Ft. Worth Airport,
TX (a)............. Embassy Suites 329 Atrium; Meeting Space: 18,900 sq. ft. 8/99
Houston, TX (a)....... Marriott 287 Atrium; Meeting Space: 14,300 sq. ft. 12/85
Mesquite, TX.......... Hampton Inn & Suites 160 Meeting Space: 21,200 sq. ft. 4/99
Convention Center: 35,100 sq. ft.(c)
Charleston, WV........ Embassy Suites 253 Atrium; Meeting Space: 14,600 sq. ft. 12/97
Madison, WI........... Marriott 292 Atrium; Meeting Space: 15,000 sq. ft.(b) 10/85
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 we own.
(c) Large civic center is located adjacent to hotel.
13
MANAGED HOTELS
The managed hotels consist of nine hotels, including three Holiday Inns,
one Sheraton, two Embassy Suites, one Marriott Courtyard, one Marriott Residence
Inn and one Renaissance, located in five states (Missouri, Nebraska, South
Dakota, Tennessee and Texas), and contain a total of 2,075 guest rooms. Mr.
Hammons directly owns eight of these nine hotels. The remaining hotel is owned
by an entity controlled by Mr. Hammons in which he and Jacqueline Dowdy, a
director and officer of our general partner, each own a 50% interest. There is a
convention and trade center adjacent to four of our managed hotels.
We provide management services to the managed hotels within the guidelines
contained in the annual operating and capital plans submitted to the hotel owner
for review and approval during the final 30 days of the preceding year. We are
responsible for the day-to-day operations of the managed hotels. While we are
responsible for the implementation of major refurbishment and repairs, the
actual cost of such refurbishments and repairs is borne by the hotel owner. We
earn annual management fees of 3% to 5% of the hotel's revenues. Each of the
management contracts with the nine hotels owned by Mr. Hammons or entities
controlled by Mr. Hammons are terminable within either 30 or 60 days.
ITEM 3. LEGAL PROCEEDINGS.
We are not presently involved in any litigation which if decided adversely
to us would have a material effect on our financial condition. To our knowledge,
there is no litigation threatened, other than routine litigation arising in the
ordinary course of business or 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.
Our Class A Common Stock was listed on the New York Stock Exchange from
November 23, 1994 until February 28, 2000, under the symbol "JQH." Effective
February 28, 2000, the Class A Common Stock began trading on the American Stock
Exchange under the symbol "JQH."
Stock Price Per Share
High Low
------ ------
2002
First Quarter $ 6.50 $ 5.60
Second Quarter $ 7.00 $ 6.15
Third Quarter $ 6.38 $ 5.92
Fourth Quarter $ 5.92 $ 5.08
2001
First Quarter $ 6.00 $ 5.19
Second Quarter $ 6.60 $ 5.30
Third Quarter $ 7.00 $ 4.05
Fourth Quarter $ 5.82 $ 3.65
Based on the number of Annual Reports requested by brokers, we estimate
that we have approximately 1,150 beneficial owners of our Class A Common Stock.
On February 28, 2003, there were approximately 280 holders of record of our
Class A Common Stock. On February 28, 2003, the last reported sale price of our
Class A Common Stock on the AMEX was $5.20.
14
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is hereby incorporated by reference
to the material appearing in the 2002 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 2002 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 2002 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 2002 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On June 24, 2002, upon the recommendation of the audit committee, our
board of directors approved the dismissal of Arthur Andersen LLP as our
independent auditors, and the selection of Deloitte & Touche LLP, to serve as
our independent auditors for the year ending January 3, 2003, subject to
Deloitte & Touche's internal client acceptance procedures.
Arthur Andersen's reports on our financial statements for each of the
years ended December 28, 2001 and December 29, 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 28, 2001 and December 29, 2000, and through the date of their
dismissal, there were no disagreements with Arthur Andersen on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Arthur Andersen's satisfaction,
would have caused Arthur Andersen to make reference to the subject matter in
connection with its reports on our financial statement for such years, and there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the years ended December 28, 2001 and December 29, 2000, and
through June 24, 2002, we did not consult Deloitte & Touche with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, or any other matters or reportable events as set forth
in Items 304(a)(2)(i) and (ii) of Regulation S-K.
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 13,
2003 (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.
15
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.
This table summarizes share and exercise price information about our
equity compensation plans as of January 3, 2003.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
---------------------- ---------------- ----------------------------
WEIGHTED-AVERAGE
EXERCISE NUMBER OF SECURITIES
NUMBER OF SECURITIES PRICE OF REMAINING AVAILABLE FOR
TO BE ISSUED UPON OUTSTANDING FUTURE ISSUANCE UNDER EQUITY
EXERCISE OF OPTIONS, COMPENSATION PLANS
OUTSTANDING OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS(1) RIGHTS REFLECTED IN COLUMN(a)) (1)
---------------------- ---------------- ----------------------------
Equity compensation plans approved by
security holders....................... 1,483,700 $6.11 933,100
Equity compensation plans not approved
by security holders.................... 230,000 $5.40 270,000
--------- ---------
Total.................................... 1,713,700 $6.02 1,203,100
========= =========
(1) Number of shares is subject to adjustment for changes in capitalization
for stock splits and stock dividends and similar events.
The other 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."
ITEM 14. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures. Our chief executive
officer and chief financial officer have evaluated the effectiveness of our
"disclosure controls and procedures" (as defined in Rules 13a-14(c) and
15d-14(d) under the Securities Exchange Act of 1934) as of April 1, 2003. Based
on that review, they have concluded that, as of such date, our disclosure
controls and procedures were effective to ensure that material information
relating to us would be made known to them.
Changes in internal controls. There were no significant changes in our
internal controls or, to the knowledge of our chief executive officer and chief
financial officer, in other factors that could significantly affect our internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses, after the date of such evaluation.
16
PART IV
ITEM 15. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K.
15(a)(1) FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets at Fiscal 2002 and 2001 Year-Ends
Consolidated Statements of Operations for the 2002, 2001 and 2000
Fiscal Years Ended
Consolidated Statements of Changes In Minority Interest and
Stockholders Equity for 2002, 2001 and 2000 Fiscal Years Ended
Consolidated Statements of Cash Flows for 2002, 2001 and 2000 Fiscal
Years Ended
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.
15(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.
15(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 15(c).
10.4 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 and October 31, 2000
10.7a Employment Agreement between John Q. Hammons Hotels, Inc. and
Lou Weckstein dated as of September 17, 2001
10.7b Employment Agreement between John Q. Hammons Hotels, Inc. and
William A. Mead dated as of January 25, 2000
10.7c Letter Agreement between John Q. Hammons and William A. Mead
dated as of January 27, 2000
10.14 1994 Employee Stock Option Plan
10.15 1999 Non-Employee Director Stock and Stock Option Plan
15(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended January 3,
2003.
15(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.
15(d) FINANCIAL STATEMENTS
None.
17
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 1st day of April, 2003.
JOHN Q. HAMMONS HOTELS, INC.
By: /s/ John Q. Hammons
-------------------------------
John Q. Hammons
Founder, Chairman and CEO
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
April 1, 2003.
Signatures Title
/s/ John Q. Hammons Founder, Chairman and CEO of John Q. Hammons
- ----------------------- Hotels, Inc.
John Q. Hammons (Principal Executive Officer)
/s/ Paul E. Muellner Chief Financial Officer of John Q. Hammons
- ----------------------- Hotels, Inc.
Paul E. Muellner (Principal Financial and Accounting Officer)
/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
/s/ David C. Sullivan Director of John Q. Hammons Hotels, Inc.
- -----------------------
David C. Sullivan
/s/ Donald H. Dempsey Director of John Q. Hammons Hotels, Inc.
- -----------------------
Donald H. Dempsey
CERTIFICATIONS
I, John Q. Hammons, certify that:
1. I have reviewed this annual report on Form 10-K of John Q. Hammons Hotels,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
18
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and all material weaknesses.
Date: April 1, 2003
/s/ John Q. Hammons
------------------------------------------
John Q. Hammons, Chief Executive Officer
I, Paul E. Muellner, certify that:
1. I have reviewed this annual report on Form 10-K of John Q. Hammons Hotels,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
19
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and all material weaknesses.
Date: April 1, 2003
/s/ Paul E. Muellner
------------------------------------------
Paul E. Muellner, Chief Financial Officer
20
EXHIBIT INDEX
NO. TITLE
3.1 Restated Certificate of Incorporation of the Company (Incorporated
by reference to Exhibit 3.3 of the Limited Partnership's Registration
Statement on Form S-4, Registration Number 333-89856-01)
3.2 Bylaws of the Company, as amended (Incorporated by reference to
Exhibit 3.4 of the Limited Partnership's Registration Statement on Form
S-4, Registration Number 333-89856-01)
3.3 Second Amended and Restated Agreement of Limited Partnership of the
Partnership (Incorporated by reference to Exhibit 3.1 of the Limited
Partnership's Registration Statement on Form S-4, Registration Number
333-89856-01)
3.4 Certificate of Limited Partnership of the Partnership, filed with
the Secretary of State of the State of Delaware (Incorporated by
reference to Exhibit 3.2 of the Limited Partnership's Registration
Statement on Form S-4, Registration Number 333-89856-01)
3.5 Articles of Incorporation of John Q. Hammons Hotels Finance
Corporation III (Incorporated by reference to Exhibit 3.5 of the
Limited Partnership's Registration Statement on Form S-4, Registration
Number 333-89856-01)
3.6 By-laws of John Q. Hammons Hotels Finance Corporation III
(Incorporated by reference to Exhibit 3.6 of the Limited Partnership's
Registration Statement on Form S-4, Registration Number 333-89856-01)
4.1 Indenture dated May 21, 2002 among the Limited Partnership and John
Q. Hammons Hotels Finance Corporation III and Wachovia Bank, National
Association, as trustee (Incorporated by reference to Exhibit 4.1 of
the Limited Partnership's Registration Statement on Form S-4,
Registration Number 333-89856-01)
4.2 Form of Global Note evidencing the 8-7/8% First Mortgage Notes due
2012 (Incorporated by reference to Exhibit 4.2 of the Limited
Partnership's Registration Statement on Form S-4, Registration Number
333-89856-01)
10.1 Letter Agreement re: Hotel Financial Services for Certain Hotels Owned
and Operated by John Q. Hammons or John Q. Hammons Controlled Companies
(Incorporated by reference to Exhibit 10.7 to the Registration
Statement of the Company on Form S-1, No. 33-84570)
(a)10.2 Holiday Inn License Agreement
(a)10.3 Embassy Suites License Agreement
(a)10.4 Form of Option Purchase Agreement
(a)10.5 Collective Bargaining Agreement between East Bay Hospitality Industry
Association, Inc. and Service Employee's International Union
10.6 Collective Bargaining Agreement between Hotel Employee and
Restaurant Employee Union Local 49 and Holiday Inn Sacramento Capitol
Plaza, for 06/01/01 to 5/31/06 (Incorporated by reference to Exhibit
10.6a from the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 2001)
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 and
October 31, 2000 (Incorporated by reference to the same numbered
exhibit in the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 29, 2000)
10.7a Employment Agreement between John Q. Hammons Hotels, Inc. and Lou
Weckstein dated as of September 17, 2001 (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended September 28, 2001)
10.7b Employment Agreement between John Q. Hammons Hotels, Inc. and William
A. Mead dated as of January 25, 2000 (Incorporated by reference to
Exhibit 10.7b from the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 28, 2001)
10.7c Letter Agreement between John Q. Hammons and William A. Mead dated as
of January 27, 2000 (Incorporated by reference to Exhibit 10.7c from
the Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 28, 2001)
10.8 John Q. Hammons Building Lease Agreement - 9th Floor (6000 sq. ft.)
(Incorporated by reference to Exhibit 10.7a of the Registration
Statement of the Company on Form S-1, No. 33-84570)
10.8a Lease Renewal for John Q. Hammons Building Lease Agreement - 9th
Floor (6000 sq. ft.) effective January 1, 2002 (Incorporated by
reference to Exhibit 10.9a.1 from the Company's
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Annual Report on Form 10-K for the Fiscal Year Ended December 28,
2001)
10.8b John Q. Hammons Building Lease Agreement - 7th Floor (2775 sq. ft.)
(Incorporated by reference to Exhibit 10.7b of the Limited
Partnership's Registration Statement on Form S-4, Registration Number
333-89856-01)
10.8c Lease Renewal for John Q. Hammons Building Lease Agreement - 7th
Floor (2775 sq. ft.) effective January 1, 2002 (Incorporated by
reference to Exhibit 10.9b.1 from the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 28, 2001)
10.8d John Q. Hammons Building Lease Agreement - 7th Floor (2116 sq. ft.)
(Incorporated by reference to Exhibit 10.7c of the Limited
Partnership's Registration Statement on Form S-4, Registration Number
333-89856-01)
10.8e Lease Renewal for John Q. Hammons Building Lease Agreement - 7th
Floor (2116 sq. ft.) effective January 1, 2002 (Incorporated by
reference to Exhibit 10.9c.1 from the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 28, 2001)
10.9 John Q. Hammons Building Lease Agreement - 8th Floor (6000 sq. ft.).
(Incorporated by reference to Exhibit 10.7d of the Limited
Partnership's Registration Statement on Form S-4, Registration Number
333-89856-01)
10.9a Lease Renewal for John Q. Hammons Building Lease Agreement - 8th
Floor (6000 sq. ft.) effective January 1, 2002 (Incorporated by
reference to Exhibit 10.9d.1 from the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 28, 2001)
(a)10.10 Triple Net Lease
(a)10.11 Lease Agreement between John Q. Hammons and John Q. Hammons Hotels,
L.P.
10.12 Ground lease between John Q. Hammons and John Q. Hammons-Branson,
L.P. - (Chateau on the Lake, Branson, Missouri) (Incorporated by
reference to Exhibit 10.10 of the Limited Partnership's Registration
Statement on Form S-4, Registration Number 333-89856-01)
10.13 Ground lease between John Q. Hammons and John Q. Hammons-Hotels Two,
L.P. - (Little Rock, Arkansas) (Incorporated by reference to Exhibit
10.11 of the Limited Partnership's Registration Statement on Form
S-4, Registration Number 333-89856-01)
10.14 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.12
of the Limited Partnership's Registration Statement on Form S-4,
Registration Number 333-89856-01)
10.15 1999 Non-Employee Director Stock and Stock Option Plan (Incorporated
by reference to the Exhibit 10.19 in the Company's Annual Report on
Form 10-K for the Fiscal Year Ended January 1, 1999)
12.1 Computation of Ratio of Earnings to Fixed Charges of the Company
13.1 2002 Annual Report to Shareholders
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Limited Partnership's Registration Statement on Form S-4,
Registration Number 333-89856-01)
23.1 Consent of Deloitte & Touche LLP
99.1 Certification Statement of Chief Executive Officer
99.2 Certification Statement of Chief Financial Officer
- ------------------------
(a) INCORPORATED BY REFERENCE TO THE SAME NUMBERED EXHIBIT IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-1, NO. 33-84570.
22