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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________________ to ___________________
Commission File number 033-7334001
John Q. Hammons Hotels, L.P.
John Q. Hammons Hotels Finance Corporation
John Q. Hammons Hotels Finance Corporation II
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 43-1523951
Missouri 43-1680322
Missouri 43-1720400
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
</TABLE>
300 John Q. Hammons Parkway
Suite 900
Springfield, MO 65806
(Address of principal executive offices)
(Zip Code)
(417) 864-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED BALANCE SHEETS
(000's omitted)
ASSETS
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<CAPTION>
July 3, 1998 January 2, 1998
------------- ----------------
(Unaudited) (Audited)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 59,374 $ 41,961
Marketable securities 11,767 12,742
Receivables
Trade, less allowance for doubtful accounts of $188 8,066 7,652
Construction reimbursements and other 2,607 3,739
Management fees 76 50
Inventories 1,099 1,206
Prepaid expenses and other 710 1,386
--------- ---------
Total current assets 83,699 68,736
PROPERTY AND EQUIPMENT, at cost:
Land and improvements 44,270 40,511
Buildings and improvements 576,110 527,856
Furniture, fixtures and equipment 212,737 197,177
Construction in progress 77,394 78,946
--------- ---------
910,511 844,490
Less-accumulated depreciation and amortization (184,950) (166,125)
--------- ---------
725,561 678,365
Property and equipment available for sale -- 38,791
--------- ---------
725,561 717,156
RESTRICTED CASH FROM PROPERTY DISPOSITION 27,261 --
DEFERRED FINANCING COSTS, FRANCHISE FEES
AND OTHER, net 28,465 30,841
--------- ---------
$ 864,986 $ 816,733
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
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JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED BALANCE SHEETS
(000's omitted)
LIABILITIES AND EQUITY
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<CAPTION>
July 3, 1998 January 2, 1998
------------ ---------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 33,863 $ 61,517
Accounts payable 10,455 11,232
Accrued expenses
Payroll and related benefits 5,338 5,529
Sales and property taxes 10,461 8,676
Insurance 12,530 11,242
Interest 12,956 12,603
Utilities, franchise fees and other 6,084 5,822
-------- --------
Total current liabilities 91,687 116,621
Long-term debt 710,407 634,274
Other obligations and deferred revenue 10,930 7,900
-------- --------
Total liabilities 813,024 758,795
-------- --------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Contributed capital 96,436 96,436
Partners' and other deficits, net (44,474) (38,498)
-------- --------
Total equity 51,962 57,938
-------- --------
$864,986 $816,733
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
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JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(000's omitted)
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<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 3, 1998 July 4, 1997 July 3, 1998 July 4, 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
REVENUES:
<S> <C> <C> <C> <C>
Rooms $ 54,110 $ 50,582 $105,388 $ 95,979
Food and beverage 22,255 20,841 44,193 41,238
Meeting room rental and other 5,446 4,796 11,182 9,544
-------- -------- -------- --------
Total revenues 81,811 76,219 160,763 146,761
OPERATING EXPENSES:
Direct operating costs and expenses:
Rooms 13,873 12,573 27,068 23,842
Food and beverage 16,094 15,100 31,545 29,938
Other 913 829 1,789 1,579
General, administrative and sales expenses 23,591 20,279 47,575 40,352
Repairs and maintenance 3,276 3,189 6,513 6,094
Depreciation and amortization 11,276 8,104 22,353 15,037
-------- -------- -------- --------
Total operating costs 69,023 60,074 136,843 116,842
-------- -------- -------- --------
INCOME FROM OPERATIONS 12,788 16,145 23,920 29,919
OTHER INCOME (EXPENSE)
Gain on property disposition -- -- 238 --
Interest income 507 130 1,395 489
Interest expense, net (14,241) (10,168) (28,698) (19,886)
-------- -------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (946) 6,107 (3,145) 10,522
EXTRAORDINARY ITEM:
Loss on extinguishment of debt (191) -- (1,308) --
-------- -------- -------- --------
NET INCOME (LOSS) $ (1,137) $ 6,107 $ (4,453) $ 10,522
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
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JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(000's omitted)
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<CAPTION>
CONTRIBUTED CAPITAL PARTNERS' AND OTHER EQUITY (DEFICIT)
------------------- ----------------------------------------------
General Partner General Partner Limited Partner Total
----------------- --------------- --------------- -----
<S> <C> <C> <C> <C>
BALANCE, January 2, 1998 (audited) $96,436 $(77,897) $39,399 $(38,498)
Distributions -- (90) (1,433) (1,523)
Net Loss -- (1,261) (3,190) (4,453)
------- -------- ------- --------
BALANCE, July 3, 1998 (unaudited) $96,436 $(79,248) $34,776 $ 44,474
======= ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
5
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JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
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<CAPTION>
Six Months Ended
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: July 3, 1998 July 4, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Net income (loss) $ (4,453) $ 10,522
Adjustments to reconcile net income (loss) to cash used in operating activities-
Depreciation, amortization, and loan cost amortization 23,498 15,996
Loss on early extinguishment of debt 1,308 --
Gain on property disposition (238) --
Changes in certain assets and liabilities
Receivables 692 (1,709)
Inventories (6) (35)
Prepaid expenses and other 676 200
Accounts payable (777) (9,219)
Accrued expenses 3,497 3,753
Other obligations and deferred revenue 3,030 2,407
--------- ---------
Net cash provided by operating activities 27,227 21,915
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment, net (65,700) (99,542)
Proceeds from disposition of property 39,387 --
Restricted cash remaining from property disposition (27,261) --
Franchise fees and other (4,171) (3,810)
Sale of marketable securities, net 975 (2,754)
--------- ---------
Net cash provided by (used in) investing activities (56,770) (106,106)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 177,027 66,831
Repayments of debt (128,548) (1,778)
Distributions (1,523) (1,815)
--------- ---------
Net cash provided by financing activities 46,956 63,238
--------- ---------
Increase (decrease) in cash and equivalents 17,413 (20,953)
CASH AND EQUIVALENTS, beginning of period 41,961 46,449
--------- ---------
CASH AND EQUIVALENTS, end of period $ 59,374 $ 25,496
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID FOR INTEREST, net of amounts capitalized $ 27,885 $ 18,918
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
6
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JOHN Q. HAMMONS HOTELS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ENTITY MATTERS
The accompanying consolidated financial statements include the accounts of
John Q. Hammons Hotels, L.P. and its wholly owned subsidiaries ("Partnership"),
consisting of John Q. Hammons Finance Corporation ("Finance Corp.") and John Q.
Hammons Hotels Finance Corporation II ("Finance Corp. II"), both corporations
with nominal assets and no operations, the catering corporations (which are
separate corporations for each hotel location chartered to own the respective
food and liquor licenses and operate the related food and beverage facilities),
and certain other wholly-owned subsidiaries conducting certain hotel operations.
In conjunction with a public offering of first mortgage notes in February
1994 (the "1994 Notes") and in November 1995 ("1995 Notes") by the Partnership
and Finance Corp. I and II, and a public offering of common stock in November
1994 ("Common Stock Offering") by its general partner, John Q. Hammons Hotels,
Inc. ("General Partner"), the Partnership, which owned and operated ten hotel
properties, obtained through transfers or contributions from Mr. John Q. Hammons
("Mr. Hammons") or enterprises that he controlled, 21 additional operating hotel
properties, equity interests in two hotels under construction, the stock of
catering corporations and management contracts relating to all of Mr. Hammons'
hotels.
The Partnership is directly or indirectly owned and controlled by Mr.
Hammons, as were all enterprises that transferred or contributed net assets to
the Partnership. Accordingly, the accompanying financial statements present, as
a combination of entities under common control as if using the pooling method of
accounting, the financial position and related results of operations of all
entities on a consolidated basis for all periods presented.
All significant balances and transactions between the entities and
properties have been eliminated.
Mr. Hammons and entities directly or indirectly owned or controlled by him
are the only limited partners of the Partnership. Mr. Hammons, through his
voting control of the General Partner, continues to be in control of the
Partnership.
2. GENERAL
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Accordingly, certain information and footnotes
required by generally accepted accounting principles (GAAP) for complete
financial statements have been omitted. These interim statements should be read
in conjunction with the financial statements and notes thereto included in the
Partnership's Form 10-K for the fiscal year ended January 2, 1998, which
included financial statements for the fiscal years ended January 2, 1998 and
January 3, 1997.
The information contained herein reflects all normal and recurring
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations and financial position for the interim
periods.
7
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The Partnership considers all operating cash accounts and money market
investments with an original maturity of three months or less to be cash
equivalents. Marketable securities consist of available-for-sale commercial
paper and governmental agency obligations which mature or will be available for
use in operations in 1998. These securities are valued at current market value,
which approximates cost.
3. ALLOCATIONS OF INCOME, LOSSES AND DISTRIBUTIONS
Income, losses and distributions of the Partnership will generally be
allocated between the General Partner and the limited partners based on their
respective ownership interests of 28.31% and 71.69%.
In the event the Partnership has taxable income, distributions are to be
made to the partners in an aggregate amount equal to the amount that the
Partnership would have paid for income taxes had it been a C Corporation during
the applicable period. Aggregate tax distributions will first be allocated to
the General Partner, if applicable, with the remainder allocated to the limited
partners.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130), which requires comprehensive income and the associated
income tax expense or benefit to be reported in a financial statement that is
displayed with the same prominence as other financial statements with an
aggregate amount of comprehensive income reported in that same financial
statement. "Other Comprehensive Income" refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income but not in net income. The Partnership adopted this
statement in the first quarter of fiscal 1998 with no impact on the
Partnership's reported consolidated financial position, results of operations,
cash flows or related disclosures.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131), which requires disclosure for each segment in which the
chief operating decision maker organizes these segments within a company for
making operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management structure
and any manner in which management disaggregates a company. The Partnership
intends to adopt SFAS 131 during fiscal 1998. This statement, which requires
expansion or modification to existing disclosures, will have no impact on the
Partnership's reported financial position, results of operation or cash flows.
In April 1998, the American Institute of Certified Public Accountants
released Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities." The SOP requires costs of start-up activities, including preopening
expenses, to be expenses as incurred. The Partnership's current practice is to
defer these expenses until a hotel has commenced operations, at which time the
costs, other than advertising costs that are expensed upon opening, are
amortized over a one-year period. The Partnership is required to adopt the
provisions of this statement no later than the first quarter of fiscal 1999 and,
consistent with the guidance of the SOP, then existing cumulative unamortized
preopening costs will be charged to expense.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. Upon
adoption of this statement, the Partnership anticipates no impact on its
reported consolidated financial position, results of operations, cash flows or
related disclosures.
5. PROPERTY DISPOSITION
Effective February 6, 1998, the Partnership completed the sale of six
hotels to an unrelated
8
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party for $40 million, resulting in a gain of approximately $0.2 million.
Certain of these hotels served as collateral under the 1994 and 1995 first
mortgage notes. Under the terms of these indentures the Partnership must provide
replacement collateral of equivalent value or apply the net proceeds from the
sale to amounts outstanding. The Partnership has provided, or is in the process
of providing, replacement collateral in accordance with the indenture
provisions. As of July 3, 1998, $27.3 million of cash was restricted for this
purpose and classified as non-current restricted cash in the accompanying
balance sheet.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General. For purposes of this discussion, the Partnership classifies new hotels
(New Hotels) as those hotels opened during the current year and the prior year,
and defines all other hotels as mature hotels (Mature Hotels).
The Partnership has opened two New Hotels in the past six months, and has an
additional six hotels under construction. The Partnership's development activity
limits its ability to grow per share income. 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 Partnership expects, but there can be no assurance, that the
operating expenses for these hotels will decrease as a percentage of revenues.
The Partnership continues to develop new hotels, including Plaza Hotel, Topeka,
Kansas; Embassy Suites Hotel, Portland Oregon; Hampton Inn and Suites Hotel
adjacent to the Mesquite Championship Rodeo Arena, Mesquite, Texas; Radisson
Plaza Hotel, Coral Springs, Florida; Marriott Renaissance Hotel at the
Charlotte, North Carolina airport; and Embassy Suites Hotel, Grapevine, Texas,
adjacent to the Bass Pro Shop's Outdoor World, near the Dallas-Fort Worth
airport. While the Partnership believes its development efforts represent the
best long-term strategy, the continued aggressive New Hotel development
initiatives will continue to have a negative effect on earnings.
Three-Month Period
The following discussion and analysis addresses results of operations for the
three month periods ended July 3, 1998 (the "1998 Quarter") and July 4, 1997
(the "1997 Quarter").
On May 11, 1998, the Partnership opened the World Golf Resort Hotel in St.
Augustine, Florida. The opening marked the sixteenth hotel the Partnership had
developed in less than three years. The Partnership expects to open two
additional hotels during the remainder of 1998: Capitol Plaza Hotel - Topeka,
Kansas; and Embassy Suites hotel - Portland, Oregon.
For the 1998 Quarter, the Partnership's total earnings before interest expense,
taxes, depreciation and amortization (EBITDA) were $24.1 million, a slight
decrease of 0.4% compared to the 1997 Quarter EBITDA of $24.2 million. The
Mature Hotels' EBITDA was $18.9 million in the 1998 Quarter, down 11.6% from
$21.4 million in the 1997 Quarter due primarily to the sale of six hotels on
February 6, 1998. The Partnership sold six Holiday Inn hotels and recognized a
book gain of $0.2 million on the sale. Excluding the six hotels sold, the Mature
Hotels EBITDA in the 1998 Quarter was $19.0 million, down 3.6% from
9
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$19.7 million in the 1997 Quarter. As a percentage of total revenues, EBITDA
related to the Mature Hotels (excluding the six hotels sold) decreased to 29.0%
in the 1998 Quarter from 30.3% in the 1997 Quarter. The New Hotels' EBITDA for
the 1998 Quarter was $2.9 million compared to $0.7 million in the 1997 Quarter.
Total revenues for the 1998 Quarter were $81.8 million, an increase of $5.6
million, or 7.3%, compared to the 1997 Quarter, primarily as a result of the
continued growth of the New Hotels, including the two hotels opened during 1998,
and, to a lesser extent, revenue growth at the Mature Hotels. The Partnership's
Mature Hotels generated total revenues of $65.5 million in the 1998 Quarter, a
decrease of $6.9 million, or 9.5%, compared to the 1997 Quarter due to the sale
of six hotels described above. The Partnership's New Hotels generated total
revenues of $15.9 million during the 1998 Quarter compared to $3.7 million in
the 1997 Quarter.
Rooms revenues increased $3.5 million, or 6.9%, from the 1997 Quarter, but
decreased slightly as a percentage of total revenues, to 66.1% from 66.4%. The
dollar increase was primarily due to increased rooms revenues from the New
Hotels, and the resulting increase in the Partnership's average room rate to
$91.78, a 12.9% increase compared to the 1997 Quarter average room rate of
$81.26. In comparison, the average room rate for the hotel industry was $78.30
in the 1998 Quarter, up 4.7% from the 1997 Quarter. The increased average room
rate was partially offset by a 2.8 percentage point decrease in the
Partnership's occupancy for the 1998 Quarter to 64.9%. Occupancy for the hotel
industry was 67.5%, down 0.7 percentage point from the 1997 Quarter. The
Partnership's Revenue Per Available Room (RevPAR) was $59.56 in the 1998
Quarter, up 8.4% from $54.97 in the 1997 Quarter. RevPAR for the hotel industry
was $52.87, up 4.0% from the 1997 Quarter.
Food and beverage revenues increased $1.4 million, or 6.7%, compared to the 1997
Quarter, and remained stable as a percentage of total revenues, at 27.3%. Sales
at the New Hotels with full food and beverage services accounted for the overall
dollar increase in food and beverage revenues.
Meeting room rental and other revenues increased $0.6 million, or 13.6%, from
the 1997 Quarter, and increased slightly as a percentage of revenues, to 6.7%
from 6.3%. The majority of the increase was a result of revenues from the New
Hotels as well as increased meeting and convention business in the Mature
Hotels.
Rooms operating expenses increased $1.3 million, or 10.3%, compared to the 1997
Quarter, and remained consistent as a percentage of rooms revenues at 24.9%.
The increase related primarily to expenses for New Hotels. For the Mature
Hotels, excluding the six hotels sold, rooms operating expenses as a percentage
of rooms revenues were 24.6%in the 1998 Quarter, compared to 23.9% in the 1997
Quarter.
Food and beverage operating expenses increased $1.0 million, or 6.6%, compared
to the 1997 Quarter, but decreased slightly as a percentage of food and beverage
revenues, to 72.3% from 72.5%. The dollar increase was attributable to expenses
associated with food and beverage revenues at the New Hotels.
10
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Other operating expenses increased $0.1 million, or 12.5%, compared to the 1997
Quarter, but decreased as a percentage of meeting room rental and other
revenues, to 16.8% from 17.3%
General, administrative and sales expenses increased $3.3 million, or 16.3%,
over the 1997 Quarter, and increased as a percentage of revenues to 28.8% from
26.6%. The increase was primarily attributable to expenses associated with the
New Hotels. The Partnership had eight New Hotels in both the 1998 Quarter and
the 1997 Quarter.
Repairs and maintenance expenses increased $0.1 million, or 2.7%, compared to
the 1997 Quarter and decreased slightly as a percentage of revenues, to 4.0%
from 4.2% in the 1997 Quarter.
Depreciation and amortization expenses increased $3.2 million, or 39.1%,
compared to the 1997 Quarter, and increased significantly as a percentage of
revenues to 13.8% from 10.6%. The depreciation and amortization increase related
entirely to the New Hotels, as depreciation and amortization expenses are higher
in the initial years of a new hotel's operation.
Income from operations decreased $3.3 million, or 20.8%, compared to the 1997
Quarter. Expenses related to operating the New Hotels, particularly depreciation
and amortization, increased more rapidly than revenues.
Interest expense, net increased $3.7 million, or 36.8%, from the 1997 Quarter,
and increased as a percentage of total revenues to 16.8% from 13.2%. These
increased costs related to interest expense for the New Hotels.
Income (loss) before minority interest, provision for income taxes and
extraordinary item represented a $0.9 million loss in the 1998 Quarter, compared
to $6.1 million of income in the 1997 Quarter. The loss was primarily
attributable to higher depreciation and amortization costs as well as interest
expense associated with the Partnership's New Hotels.
Six-Month Period
The following discussion addresses results of operations for the six month
periods ended July 3, 1998 (the "1998 Six Months") and July 4, 1997 (the "1997
Six Months").
For the 1998 Six Months the Company's total earnings before interest expense,
taxes, depreciation and amortization (EBITDA) was $46.3 million, a 2.9% increase
compared to the 1997 Six Months. The Mature Hotels' EBITDA was $37.0 million in
the 1998 Six Months, down $3.3 million from the 1997 Six Months, primarily due
to the sale of six hotels on February 6, 1998. Excluding the six hotels sold,
the Mature Hotels EBITDA in the 1998
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Six Months was $37.2 million, down 1.0% from the $37.6 million in the 1997 Six
Months.
Total revenues increased to $160.8 million in the 1998 Six Months from $146.8
million in the 1997 Six Months, an increase of $14.0 million or 9.5%. The
increase is primarily attributed to the continued growth of New Hotels.
Rooms revenues increased to $105.4 million in the 1998 Six Months from $96.0
million in the 1997 Six Months, an increase of $9.4 million or 9.8% as a result
of increases in average room rates and total number of available rooms. Rooms
revenues as a percentage of total revenues remained relatively stable, at 65.6%,
compared to 65.4% in the 1997 Six Months. Average room rates of Mature Hotels
increased to $86.57 in the 1998 Six Months from $79.72 in the 1997 Six Months,
an increase of $6.85 or 8.6%. Occupancy of Mature Hotels decreased to 64.3% in
the 1998 Six Months from 65.8% in the 1997 Six Months, a decrease of 1.5
percentage points.
Food and beverage revenues increased to $44.2 million in the 1998 Six Months
from $41.2 million in the 1997 Six Months, an increase of $3.0 million or 7.3%,
but decreased as a percentage of total revenues to 27.5% from 28.1% in the 1997
Six Months. The dollar increase in revenues was attributable primarily to sales
at the New Hotels, and to the opening of additional full service hotels, opening
of new restaurant concepts in the existing hotels, and menu pricing adjustments.
Meeting room rental and other revenues increased to $11.2 million in the 1998
Six Months from $9.5 million in the 1997 Six Months, an increase of $1.6 million
or 17.2%. Meeting room rental and other revenues also increased as a percentage
of total revenues to 7.0% from 6.5% in the 1997 Six Months.
Rooms operating expenses increased to $27.1 million in the 1998 Six Months from
$23.8 million in the 1997 Six Months, an increase of $3.2 million or 13.5%. This
expense represented 25.7% of rooms revenues in the 1998 Six Months and 24.8% in
the 1997 Six Months. The dollar and percentage increases are related to the
additional hotels opened in the last twelve months.
Food and beverage operating expenses increased to $31.5 million in the 1998 Six
Months from $29.9 million in the 1997 Six Months, an increase of $1.7 million or
5.7%. These expenses decreased as a percentage of food and beverages revenues in
the 1998 Six Months, however, to 71.3%, from 72.6% in the 1997 Six Months.
Other operating expenses increased to $1.8 million in the 1998 Six Months from
$1.6 million in the 1997 Six Months, an increase of $0.2 million or 13.3%, but
declined as a percentage of meeting room rental and other income, to 16.1% in
the 1998 Six Months from 16.5% in the 1997 Six Months.
General, administrative and sales expenses increased to $47.6 million in the
1998 Six Months from $40.4 million in the 1997 Six Months, an increase of $7.2
million or 17.8%, and increased as a percentage of total revenues to 29.6% from
27.5% in the 1997 Six Months. The increase in these expenses was primarily the
result of expenses associated with
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the opening of New Hotels.
Repairs and maintenance expenses increased to $6.5 million in the 1998 Six
Months from $6.1 million in the 1997 Six Months, an increase of $0.4 million or
6.9%. The increase was a result of the increased number of hotels open.
Depreciation and amortization expenses increased to $22.4 million in the 1998
Six Months from $15.0 million in the 1997 Six Months, an increase of $7.3
million or 48.7%. These expenses represented 13.9% of total revenues in the 1998
Six Months compared to 10.2% of total revenues in the 1997 Six Months.
Income from Operations decreased to $23.9 million in the 1998 Six Months from
$29.9 million in the 1997 Six Months, a decrease of $6.0 million or 20.1%. The
decrease was due primarily to higher depreciation and amortization and higher
general, administrative and sales expenses.
Interest expense, net increased to $27.3 million in the 1998 Six Months from
$19.4 million in the 1997 Six Months, an increase of $7.9 million or 40.8%. As a
percentage of total revenues, this expense increased to 17.0% in the 1998 Six
Months from 13.2% in the 1997 Six Months.
Income (Loss) before minority interest, provision for income taxes and
extraordinary item was $3.1 million loss in the 1998 Six Months, compared to
income of $10.5 million in the 1997 Six Months.
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Liquidity and Capital Resources
In general, the Partnership 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. In addition, in the future the
Partnership will obtain mortgage financing secured by construction in progress
to provide funding for hotels it develops. Any funds from sales of hotels that
are not restricted under the terms of the Partnership's debt documents also
would be available for these purposes. The Partnership's principal uses of cash
are to pay operating expenses, to service debt, to fund new hotel development,
to fund capital improvements on existing hotels and to make Partnership
distributions to fund some of the taxes associated with income allocable to the
partners.
At July 3, 1998, the Partnership had $59.4 million of cash and equivalents and
$11.8 million of marketable securities, compared to $42.0 million and $12.7
million, respectively, at the end of 1997. Total current assets at July 3, 1998,
increased $15.0 million, as the result of an increase in cash and cash
equivalents. In February 1998, the Partnership completed the sale of six
properties for approximately $40 million. That sale consisted of assumption of
debt and other obligations of approximately $5.1 million and cash of
approximately $34.9 million. Five of the six hotels sold served as collateral
for the 1994 and 1995 Mortgage Notes. The Partnership intends to provide
replacement collateral for these mortgage notes. As of July 3, 1998, the
Partnership had provided replacement collateral for one of the five hotels, and
held $27.3 million of restricted cash available for the remaining replacement
collateral.
Net cash provided by operating activities was $27.1 million for the 1998 Six
Months compared to $21.9 million for the 1997 Six Months.
The Partnership's long term debt increased $48.5 million during the 1998 Six
Months to fund new hotel development. The Partnership incurred net capital
expenditures of approximately $65.7 million during the 1998 Six Months and $99.5
million during the 1997 Six Months. Of the $65.7 million incurred during the
1998 Six Months, approximately $8.2 million was for capital improvements on
existing hotel properties and approximately $57.5 million was for development of
new hotels. During the remainder of 1998, the Partnership expects capital
expenditures to total approximately $100.5 million, including approximately
$13.6 million for capital improvements on existing hotels and approximately
$78.7 million for continued new hotel development.
The Partnership currently has six hotels under construction. The Partnership
estimates the remaining building and pre-opening costs of these hotels will
require additional capital expenditures of approximately $112.9 million,
including expenses scheduled during 1998. Construction in progress at July 3,
1998 included $68.2 million expended for these projects. The Partnership has
received loans and loan commitments for the six projects under construction in
the amount of $120.3 million, with $90.7 million available, and expects the
remaining 1998 capital requirements to be funded by cash, operating income and
additional loans on unencumbered developments.
In addition to capital expenditures for the hotels under construction, the
Partnership is at
14
<PAGE>
various stages in other new hotel development. Capital requirements for the new
hotels under development are expected to be provided by (i) construction loans;
(ii) refinancing of certain existing hotels; (iii) contributions from third
parties; and (iv) cash flow from operations.
The Partnership expects to continue to fund development of new hotels through
limited partnerships in which the Partnership will be the general partner and an
affiliate of the general partner will be the limited partner. As permitted by
the indentures relating to the 1994 Notes and the 1995 Notes (the "1994 and 1995
Note Indentures"), each of these entities will be an "Unrestricted Subsidiary"
for purposes thereof, and accordingly, the ability of the Partnership to fund
these entities is subject to certain limitations contained in the 1994 and 1995
Note Indentures. All of the indebtedness of these entities will be non-recourse
to the Partnership. The Partnership believes that funding permitted under the
1994 and 1995 Note Indentures will be sufficient to meet its current hotel
development plans.
Based upon current plans relating to the timing of new hotel development and
loan draw schedules, the Partnership anticipates that its capital resources will
be adequate to satisfy its 1998 capital requirements for the currently planned
projects and normal recurring capital improvement.
The Partnership accrued $1.5 million of distributions to the partners during the
1998 Quarter. Any distributions by the Partnership to its partners must be made
in accordance with the provisions of the 1994 and 1995 Note Indentures.
On August 14, 1998, the Partnership was notified that Standard & Poor's has
placed the Partnership's corporate credit and securities debt ratings on Credit
Watch status. The Partnership's Management plans to meet and discuss the
Partnership's financing and development strategies within the next ten days. The
Partnership plans to meet with Standard & Poor's in September of 1998 to address
and review their issues.
Year 2000. The Partnership 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 Partnership and would have been implemented within the
next few years even absent a Year 2000 issue.
The Partnership 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 Partnership 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 Partnership does not anticipate any material impact on its corporate
operation, given the current systems used are believed to be Year 2000
compliant.
NOTE: Certain matters discussed within this report, including statements
regarding the Partnership's expectations or plans, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. 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 Partnership's
inability to obtain permanent financing for New Hotels on terms similar to those
available in the past.
Supplemental Financial Information Relating to the 1994 and 1995 Collateral
Hotels
The following tables set forth, as of July 3, 1998, unaudited selected
financial information with respect to the 20 hotels collateralizing the 1994
Notes (the "1994 Collateral Hotels") and the eight hotels collateralizing the
1995 notes (the "1995 Collateral Hotels") and the Partnership, excluding
Unrestricted Subsidiaries (as defined in the indentures relating to the 1994
Notes and the 1995 Indentures) (the "Restricted Group"). Under the heading
"Management Operations," information with respect to revenues and expenses
generated by the Partnership as manager of the 1994 Collateral Hotels, the 1995
Collateral Hotels, the other Owned Hotels owned by John Q. Hammons Hotels Two,
L.P. ("L.P. Two"), and the Managed Hotels is provided.
15
<PAGE>
<TABLE>
<CAPTION>
Trailing 12 Months Ended July 3, 1998
---------- ---------- ---------- ----------
1994 1995 Management Total
Collateral Collateral Operations Restricted
Hotels Hotels Group Group
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands, except operating data)
Statement of Operations Data:
Operating Revenues $144,045 $59,791 $5,779 $209,615
Operating Expenses:
Direct operating costs and
expenses 54,441 22,979 - 77,420
General, administrative, sales
and management expenses(b) 40,177 18,057 (798) 57,436
Repairs and maintenance 5,710 2,655 - 8,365
Depreciation and amortization 12,280 5,461 162 17,903
-------- ------- ------ --------
Total operating expenses 112,280 49,152 (636) 161,124
-------- ------- ------ --------
$ 31,437 $10,639 $6,415 $ 48,491
======== ======= ====== ========
Income from operations:
Operating Data:
Occupancy 64.3% 62.7%
Average daily room rate $ 83.92 $ 77.77
RevPAR $ 53.95 $ 48.79
Trailing 12 Months Ended January 2, 1998
---------- ---------- ---------- ----------
1994 1995 Management Total
Collateral Collateral Operations Restricted
Hotels Hotels Group Group
---------- ---------- ---------- ----------
(Dollars in thousands, except operating data)
Statement of Operations Data:
Operating Revenues $151,797 $62,209 $ 4,828(a) $218,834
Operating Expenses:
Direct operating costs and
expenses 57,511 24,030 -- 81,541
General, administrative, sales and
management expenses(b) 41,960 18,303 (1,524)(c) 58,739
Repairs and maintenance 6,089 2,771 -- 8,860
Depreciation and amortization 12,072 5,391 76 17,539
-------- ------- ------- --------
Total operating expenses 117,632 50,496 (1,448) 166,679
-------- ------- ------- --------
Income from operations: $ 34,165 $11,713 $ 6,276 $ 52,154
======== ======= ======= ========
</TABLE>
16
<PAGE>
Operating Data:
Occupancy 65.2% 65.2%
Average daily room rate $ 80.32 $ 75.30
RevPAR $ 52.33 $ 49.06
(a) Represents management revenues derived from the Owned Hotels owned by L.P.
Two and the Managed Hotels.
(b) General administrative, sales and management expenses for the 1994 and 1995
Collateral Hotels includes management expenses allocated to the respective
hotels.
(c) General, administrative, sales and management expenses applicable to
management operations is net of management revenues allocated to the 1994
and 1995 Collateral Hotels.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
Note Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Securities Holders.
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index incorporated by reference
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereto duly authorized.
JOHN Q. HAMMONS HOTELS, L.P.
By: John Q. Hammons Hotels, Inc.
its General Partner
By: /s/ John Q. Hammons
--------------------
John Q. Hammons, Chairman,
Founder, and Chief Executive Officer
By: /s/ Kenneth J. Weber
---------------------
Kenneth J. Weber, Chief Financial
Officer and Executive Vice President
(Principal Financial Officer)
JOHN Q. HAMMONS HOTELS FINANCE CORPORATION
By: /s/ John Q. Hammons
--------------------
John Q. Hammons, Chairman,
Founder, and Chief Executive Officer
By: /s/ Kenneth J. Weber
---------------------
Kenneth J. Weber, Chief Financial Officer
and Executive Vice President (Principal
Financial Officer)
JOHN Q. HAMMONS HOTELS FINANCE CORPORATION II
By: /s/ John Q. Hammons
--------------------
John Q. Hammons, Chairman,
Founder, and Chief Executive Officer
By: /s/ Kenneth J. Weber
---------------------
Kenneth J. Weber, Chief Financial Officer
and Executive Vice President (Principal
Financial Officer)
Dated: August 17, 1998
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1998
<PERIOD-START> JAN-03-1998
<PERIOD-END> JUL-03-1998
<CASH> 59,374
<SECURITIES> 11,767
<RECEIVABLES> 10,937
<ALLOWANCES> 188
<INVENTORY> 1,099
<CURRENT-ASSETS> 83,699
<PP&E> 910,511
<DEPRECIATION> 184,950
<TOTAL-ASSETS> 864,986
<CURRENT-LIABILITIES> 91,687
<BONDS> 710,407
0
0
<COMMON> 0
<OTHER-SE> 51,962
<TOTAL-LIABILITY-AND-EQUITY> 864,986
<SALES> 0
<TOTAL-REVENUES> 160,763
<CGS> 0
<TOTAL-COSTS> 60,402
<OTHER-EXPENSES> 76,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,303
<INCOME-PRETAX> (3,145)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,145)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,308)
<CHANGES> 0
<NET-INCOME> (4,453)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
