<PAGE>
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 April 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________________ to ___________________
Commission File number 033-7334001
JOHN Q. HAMMONS HOTELS, L.P.
JOHN Q. HAMMONS HOTELS FINANCE CORPORATION
JOHN Q. HAMMONS HOTELS FINANCE CORPORATION II
(Exact name of registrants as specified in their charters)
DELAWARE 43-1523951
MISSOURI 43-1680322
MISSOURI 43-1720400
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
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
registrants were 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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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED BALANCE SHEETS
(000's omitted)
ASSETS
<TABLE>
<CAPTION>
APRIL 2, 1999 January 1,1999
--------------- -----------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
CASH AND EQUIVALENTS $ 30,853 $ 46,233
MARKETABLE SECURITIES 8,119 6,533
RECEIVABLES
Trade, less allowance for doubtful accounts of $206 8,923 8,852
Construction reimbursements, shareholder and other 5,277 5,269
Management fees 71 62
INVENTORIES 1,179 1,205
PREPAID EXPENSES AND OTHER 1,012 1,089
--------- ---------
Total Current Assets 55,434 69,243
PROPERTY AND EQUIPMENT, at cost
Land and improvements 47,987 47,982
Buildings and improvements 605,901 605,586
Furniture, fixture and equipment 240,855 239,648
Construction in progress 86,800 63,078
--------- ---------
981,543 956,294
Less-accumulated depreciation and amortization (205,611) (194,860)
--------- ---------
775,932 761,434
DEFERRED FINANCING COSTS, FRANCHISE FEES AND OTHER, net 45,093 45,809
--------- ---------
$ 876,459 $ 876,486
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED BALANCE SHEETS
(000's omitted)
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
APRIL 2, 1999 JANUARY 1,1999
------------- ---------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 30,570 $ 42,256
Accounts payable 4,169 13,141
Accrued expenses
Payroll and related benefits 5,615 6,843
Sales and property taxes 10,792 9,558
Insurance 9,629 10,061
Interest 3,684 12,540
Utilities, franchise fees and other 6,867 5,568
Accrued dividends - 2,936
-------- --------
Total current liabilities 71,326 102,903
Long-term debt 755,741 717,460
Other obligations and deferred revenue 7,933 10,883
-------- --------
Total liabilities 835,000 831,246
-------- --------
EQUITY
Contributed capital 96,436 96,436
Partners' and other deficits, net (54,977) (51,196)
-------- --------
Total equity 41,459 45,240
-------- --------
$876,459 $876,486
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(000's omitted)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
April 2, 1999 April 3, 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Rooms $ 54,255 $ 51,278
Food and beverage 23,305 21,938
Meeting room rental and other 6,035 5,736
-------- --------
Total revenues 83,595 78,952
OPERATING EXPENSES:
Direct operating costs and expenses
Rooms 13,757 13,195
Food and beverage 16,314 15,451
Other 864 876
General, administrative and sales expenses 24,738 23,984
Repairs and maintenance 3,533 3,237
Depreciation and amortization 10,695 11,077
-------- --------
Total operating expenses 69,901 67,820
-------- --------
INCOME FROM OPERATIONS 13,694 11,132
OTHER INCOME (EXPENSE)
Gain on property disposition - 238
Interest income 842 888
Interest expense and amortization of deferred financing fees (15,801) (14,457)
-------- --------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (1,265) (2,199)
Extraordinary item; Cost of extinguishment of debt (125) (1,117)
-------- --------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (1,390) (3,316)
Cumulative effect of change in accounting principle, net (1,819) --
-------- --------
NET LOSS $ (3,209) $ (3,316)
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(000's omitted)
<TABLE>
<CAPTION>
PARTNERS' AND OTHER
-------------------
CONTRIBUTED CAPITAL EQUITY (DEFICIT)
------------------- ----------------
General General Limited Total
------- ------- ------- -----
Partner Partner Partner
------- ------- --------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1999 (audited) $96,436 $(78,588) $27,392 $45,240
Distributions - (30) - (30)
Distributions to Partner to purchase
treasury stock - (542) - (542)
Net loss - (908) (2,301) (3,209)
------- -------- ------- -------
BALANCE, April 2, 1999 (unaudited) $96,436 $(80,068) $25,091 $41,459
======= ======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
JOHN Q. HAMMONS HOTELS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(000's omitted)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
APRIL 2, 1999 APRIL 3, 1998
------------------------ ------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,209) $ (3,316)
Adjustment to reconcile net loss to cash provided by
operating activities -
Depreciation, amortization and loan cost amortization 11,287 11,604
Extraordinary item 125 1,117
Cumulative effect of change in accounting principle 1,819 -
Gain on sale of property and equipment - (238)
Changes in certain assets and liabilities
Receivables (88) (1,701)
Inventories 26 38
Prepaid expenses and other 77 368
Accounts payable (8,972) (3,367)
Accrued expenses (7,983) (10,128)
Other obligations and deferred revenue (2,950) 876
-------- --------
Net cash used in operating activities (9,868) (4,747)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (25,139) (27,587)
Proceeds from sales of property and equipment - 39,387
Franchise fees and other (1,874) (31,797)
(Purchase) sale of marketable securities, net (1,586) 2,593
-------- --------
Net cash used in investing activities (28,599) (17,404)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 40,146 96,961
Repayments of debt (13,551) (83,571)
Distributions to partners (2,966) (30)
Distributions to Partner to purchase treasury stock (542) -
-------- --------
Net cash provided by financing activities 23,087 13,360
-------- --------
Decrease in cash and equivalents (15,380) (8,791)
CASH AND EQUIVALENTS, beginning of period 46,233 41,961
-------- --------
CASH AND EQUIVALENTS, end of period $ 30,853 $ 33,170
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID FOR INTEREST, net of amounts capitalized $ 24,056 $ 22,821
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
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 Hotels 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 1, 1999, which
included financial statements for the fiscal years ended January 1, 1999,
January 2, 1998 and January 3, 1997.
<PAGE>
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.
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 1999. 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.
During the first quarter of 1999, the Partnership provided $0.5 million in
distributions to John Q. Hammons Hotels, Inc. for the purchase of treasury
stock.
4. NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants released
Statement of Position "Reporting on the Costs of Start-Up Activities" which
requires costs of start-up activities, including preopening expenses, to be
expensed as incurred. The Partnership's past practice was to defer these
expenses until a hotel had commenced operations, at which time the costs, other
than advertising costs that are expensed upon opening, were amortized over a
one-year period. The Partnership adopted the provisions of this statement in
the first quarter of fiscal 1999 and, as a result, cumulative unamortized
preopening costs of $1.8 million were 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 No. 133"). SFAS No. 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
No. 133 is effective for fiscal years beginning after June 15, 1999. Upon
adoption in this statement, the Partnership anticipates no impact on its
reported consolidated financial position, results of operations, cash flows or
related disclosures.
5. PROPERTY DISPOSITIONS
<PAGE>
Effective February 6, 1998, the Partnership completed the sale of six hotels to
an unrelated party for $39.4 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
provided replacement collateral of equivalent value.
On December 31, 1998, the Partnership completed the sale of an additional hotel
property to an unrelated party for $16.1 million, resulting in a gain of
approximately $8.0 million. In addition to cash received upon closing, the sales
price included a note receivable for $11.9 million, bearing 8.0% interest, due
in 1999. The note receivable is secured by the hotel and a personal guarantee
by a shareholder of the buyer. This hotel served as collateral under the 1994
first mortgage notes. Under the terms of this indenture, the Partnership must
provide replacement collateral of equivalent value or apply the net proceeds
from the sale to amounts outstanding. The Partnership intends to provide
replacement collateral in accordance with the indenture provisions.
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 announced on September 11, 1998, that it was ceasing new
development activity, except for the hotels under construction. At the end of
the 1999 Quarter, the Partnership had six hotels under construction: 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; Embassy Suites
Hotel, Grapevine, Texas, adjacent to the Bass Pro Shop's Outdoor World, near the
Dallas-Fort Worth airport; Renaissance Hotel in Oklahoma City, Oklahoma and
Embassy Suites Hotel in Charleston, South Carolina. On April 15, 1999, the
Partnership opened the Mesquite Hampton Inn and Suites Hotel. The Partnership
opened the Coral Springs Radisson Plaza Hotel on May 1, 1999.
The Partnership's development activity limits its ability to grow net 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 that the
operating expenses for these hotels will decrease as a percentage of revenues,
although there can be no assurance that this will occur.
RESULTS OF OPERATIONS. The following discussion and analysis addresses results
of operations for the three month periods ended April 2, 1999 (the "1999
Quarter") and April 3, 1998 (the "1998 Quarter").
For the 1999 Quarter, the Partnership's total earnings before interest expense,
taxes, depreciation and amortization (EBITDA) were $24.4 million, a 9.9%
increase over the 1998 Quarter EBITDA of $22.2 million. The Mature Hotels'
EBITDA was $20.1 million in the 1999 Quarter, up 9.8%
<PAGE>
from $18.3 million in the 1998 Quarter. As a percentage of total revenues,
EBITDA related to the Mature Hotels decreased to 27.3% in the 1999 Quarter from
29.1% in the 1998 Quarter. The New Hotels' EBITDA for the 1999 Quarter was $2.3
million compared to $2.5 million in the 1998 Quarter. In the 1999 Quarter, the
Partnership had four New Hotels, compared to seven New Hotels in the 1998
Quarter. The 1999 Quarter results also include $0.8 million in preopening
expenses related to the six hotels under construction. In prior years that
amount would have been amortized over twelve months, rather than being expensed
as incurred.
Total revenues for the 1999 Quarter were $83.6 million, an increase of $4.6
million, or 5.9%, compared to the 1998 Quarter, primarily as a result of the
continued growth of the New Hotels, including the hotels opened during the last
half of fiscal 1998. The Partnership's Mature Hotels generated total revenues
of $73.6 million in the 1999 Quarter, an increase of $8.2 million, or 12.2%,
compared to the 1998 Quarter. The Partnership's four New Hotels generated total
revenues of $9.6 million during the 1999 Quarter compared to $13.2 million from
the seven New Hotels in the 1998 Quarter.
Rooms revenues increased $3.0 million, or 5.8%, from the 1998 Quarter, and
remained consistent as a percentage of total revenues at 64.9%. The dollar
increase was primarily due to increased rooms revenues from the Mature Hotels,
and an increase in the Partnership's average room rate to $95.02, a 5.3%
increase compared to the 1998 Quarter average room rate of $90.20. In
comparison, the average room rate for the hotel industry was $81.88 in the 1999
Quarter, up 3.7% from the 1998 Quarter. The increased average room rate was
partially offset by a 0.4 percentage point decrease in Partnership's occupancy
for the 1999 Quarter to 61.0%. Occupancy for the hotel industry was 59.4%, down
0.7 percentage points from the 1998 Quarter. The Partnership's Revenue Per
Available Room (RevPAR) was $57.94 in the 1999 Quarter, up 4.6% from $55.37 in
the 1998 Quarter. RevPAR for the hotel industry was $48.64, up 3.4% from the
1998 Quarter.
Food and beverage revenues increased $1.4 million, or 6.2%, compared to the 1998
Quarter, and increased slightly as a percentage of total revenues, to 27.9%,
from 27.8%.
Meeting room rental and other revenues increased $0.3 million, or 5.2%, from the
1998 Quarter, but decreased slightly as a percentage of revenues, to 7.2% from
7.3%.
Rooms operating expenses increased $0.6 million, or 4.3%, compared to the 1998
Quarter, but decreased as a percentage of rooms revenues, to 25.4% compared to
25.7%. The dollar increase relates primarily to expenses for New Hotels.
Food and beverage operating expenses increased $0.9 million, or 5.6%, compared
to the 1998 Quarter, but decreased as a percentage of food and beverage
revenues, to 70.0% from 70.4%. The dollar increase was attributable to expenses
associated with food and beverage services at the New Hotels.
Other operating expenses remained stable compared to the 1998 Quarter, and
decreased as a percentage of meeting room rental and other revenues, to 14.3%
from 15.3% in the same period of the prior year.
<PAGE>
General, administrative and sales expenses increased $0.8 million, or 3.1%, over
the 1998 Quarter, but decreased as a percentage of revenues to 29.6% from 30.4%.
The dollar increase was primarily attributable to expenses associated with the
hotels under construction, and included $0.6 million of preopening expenses
related to those hotels.
Repairs and maintenance expenses increased $0.3 million, or 9.1%, compared to
the 1998 Quarter and increased slightly as a percentage of revenues, to 4.2%,
from 4.1% in the 1998 Quarter.
Depreciation and amortization expenses decreased $0.4 million, or 3.5%, compared
to the 1998 Quarter, and decreased as a percentage of revenues to 12.8% from
14.0%. The depreciation and amortization decrease is primarily attributable to
the change in accounting principle for preopening costs. In the 1998 Quarter,
the Partnership amortized preopening costs which are now required to be expensed
as incurred rather than amortized over twelve months.
Income from operations increased $2.6 million, or 23.0%, compared to the 1998
Quarter, and increased significantly as a percentage of revenues, to 16.4% from
14.1% in the 1998 Quarter. The Partnership has stabilized its expenditure
levels while achieving revenue increases.
Interest income remained stable from the 1998 Quarter, as the Partnership
reinvested cash from the sale of hotels, as described above.
Interest expense and amortization of deferred financing fees increased $1.3
million, or 9.3%, from the 1998 Quarter, and increased as a percentage of total
revenues to 18.9% from 18.3%. These increased costs related to interest expense
for the New Hotels, and can be expected to continue to rise as the Partnership
completes its hotels under construction.
Loss before extraordinary item and cumulative effect of change in accounting
principle was $1.3 million in the 1999 Quarter, compared to $2.2 million in the
1998 Quarter. The decrease in the loss was primarily attributable to the
Partnership's ability to hold costs stable while increasing revenues.
Net loss for the 1999 Quarter was $3.2 million compared to a $3.3 million net
loss in the 1998 Quarter.
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.
The Partnership's principal uses of cash are to pay operating expenses, to
service debt, to fund capital expenditures and new hotel development, to make
partnership distributions to fund some of the taxes associated with income
allocable to the partners and to enable the General Partner to purchase treasury
stock.
At April 2, 1999, the Partnership had $30.9 million of cash and equivalents and
$8.1 million of marketable securities, compared to $46.2 million and $6.5
million, respectively, at the end of 1998. As of April 2, 1999, the Partnership
also had $6.7 million of restricted cash and an $11.9
<PAGE>
million note receivable which is available for replacement collateral for the
hotel sold December 31, 1998. The remaining amounts of cash and equivalents are
available for completion of hotels under construction and other working capital
requirements of the Partnership.
Net cash used in operating activities was $9.9 million for the 1999 Quarter
compared to $4.8 million for the 1998 Quarter. The Partnership used more cash
in the 1999 Quarter as it reduced its level of current liabilities.
At April 2, 1999, total debt was $786.3 million compared with $759.7 million at
the end of 1998. The increase is attributable to the six hotels under
construction. The current portion of long-term debt was $30.6 million, compared
with $42.3 million at the end of 1998 due to the refinancing of the Topeka
Capitol Plaza Hotel. The Partnership incurred net capital expenditures of
approximately $25.1 million during the 1999 Quarter and $27.6 million during the
1998 Quarter. Of the $25.1 million incurred during the 1999 Quarter,
approximately $1.6 million was for capital improvements on existing hotel
properties and approximately $23.5 million was for development of new hotels.
During the remainder of 1999, the Partnership expects capital expenditures to
total approximately $122.9 million, including approximately $13.9 million for
capital improvements on existing hotels and approximately $109.0 million for
continued new hotel development.
At the end of the 1999 Quarter, the Partnership had six hotels under
construction. The Partnership estimates the remaining building costs of these
hotels will require additional capital expenditures of approximately $109.0
million during 1999 and 2000. Construction in progress at April 2, 1999
included $86.8 million expended for these projects and other hotel
refurbishment. The Partnership has received loans and loan commitments for six
projects under construction in the amount of $143.0 million, with $97.0 million
available, and expects the remaining 1999 capital requirements to be funded by
cash, operating income and refinancing of certain existing hotels. 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 1999 capital requirements for the currently planned
projects and normal recurring capital improvements.
NOTE: In addition to historical information, this document contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements typically, but not exclusively,
are identified by the inclusion of phrases such as "the Partnership believes,"
"the Partnership plans," "the Partnership intends," and other phrases of similar
meaning. These forward-looking statements involve risks and uncertainties and
are based on current expectations. Consequently, actual results could differ
materially from the expectations expressed in the forward-looking statements.
Among the various factors that could cause actual results to differ include a
downturn in the economy (either regionally or nationwide) affecting overall
hotel occupancy rates, revenues at New Hotels not reaching expected levels as
quickly as planned as the result of competitive factors or the Partnership's
inability to obtain permanent financing for New Hotels on terms similar to those
available in the past.
<PAGE>
YEAR 2000
STATE OF READINESS
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 that the current systems used are believed to be Year 2000
compliant.
CORPORATE SYSTEMS
Computer hardware and software systems were tested for Y2K compliance during the
first quarter of 1998. Ninety percent of those systems not compliant were
replaced other than the timekeeping software, which will be replaced during the
third quarter of 1999.
HOTEL SYSTEMS
Testing of Partnership owned computer hardware and software was started during
the first quarter of 1998. All software systems and ninety percent of all
hardware systems have been tested and those systems deemed not Y2K compliant
have been identified and have either been replaced at this time or are scheduled
for replacement during the second quarter of 1999. Most non-compliant software
is being replaced with Y2K compliant upgrades at no expense to the Partnership.
Promus Hotels, Inc. uses the HMS Property Management System. This system is not
Y2K compliant and is scheduled for replacement at all non-compliant hotels
during the second quarter of 1999. Radisson Hotels and some Partnership hotels
use the Fidelio Property Management System. This software is Y2K compliant, and
the operating system on the file servers will be compliant with the installation
of software patches at no expense to the Partnership. These systems are
scheduled for upgrade in the year 2000 independent of the Y2K situation.
EMBEDDED SYSTEMS
Non-Critical-Fax machines, copiers and similar equipment are generally leased.
The majority of these devices have been tested and deemed Y2K compliant. Those
failing the Y2K testing will be
<PAGE>
replaced by the lessor during 1999 under current leasing agreements as required
in order to be Y2K compliant.
Critical-Systems in this category include elevators, fire control, security,
energy management, credit card processing and telecommunications. The
Partnership has completed 95% of the testing and evaluation of these systems.
Systems requiring modifications to be Y2K compliant will be upgraded during the
second quarter of 1999.
VENDOR COMPLIANCE CERTIFICATIONS
Requests for Y2K compliance have been sent to those vendors and utility
suppliers which have a strategic relationship with the Partnership specifically
and with the hotels in general. Those compliance letters will be on file in the
Partnership 's offices.
COMPLIANCE TESTING
Information Technology
The Partnership has received Y2K compliance certifications from the majority of
its property management system vendors. All certifications are expected to be on
file by the end of the second quarter 1999. The Partnership has received Y2K
compliance testing software from its property management system vendors and
completed those tests during the fourth quarter of 1998.
The Partnership will monitor all systems currently in place as well as Y2K
upgrades installed during the first half of 1999 to insure Y2K integrity
throughout the year 2000.
Embedded Systems
The Partnership has received Y2K compliance certifications from the majority of
its vendors. All certifications are expected to be on file by the end of the
second quarter, 1999. The Partnership or its authorized vendors began conducting
Y2K compliance field testing during the fourth quarter of 1998 and will continue
testing throughout 1999.
The Partnership will monitor all systems currently in place and those Y2K
upgrades that will be installed during the first half of 1999, to insure Y2K
integrity throughout the year 2000.
COST OF IMPLEMENTATION
Total expenses directly attributed to Y2K compliance for the corporate office
were less than $75,000 through the end of the first quarter of 1999. The
Partnership also has allocated approximately $50,000 to date for upgrades
necessary to meet Y2K compliance the Promus Hotels. Remaining expenditures for
hardware and software were for scheduled upgrades not attributable to Y2K
compliance.
FUTURE COSTS
<PAGE>
Hotels operating under the Bass Hotels & Resorts flag (eighteen hotels) will
incur minimal costs to replace some computer systems. Average cost per hotel is
estimated to be less than $10,000. Hardware requirements will be offset with the
transfer of existing Y2K compliant hardware from other hotels that are receiving
technology-driven upgrades.
Hotels operating under the Promus Hotels flag (sixteen hotels) will receive new
hardware and software as part of a technology and Y2K compliant upgrade. The
estimated cost for this upgrade is approximately $625,000, including
approximately $50,000 spent to date as described above.
The balance of the Partnership 's hotels have budgeted approximately $400,000 in
capital funds for technology replacements and Y2K compliance issues.
CONTINGENCY PLANS
Information Technology
Hardware-A number of non-critical (time/date critical operations are not
dependent on these systems) hardware systems have failed Y2K compliance testing.
These systems are scheduled for replacement during the first half of 1999.
Failure to replace these systems will not materially impact the operation of the
Partnership or its hotels.
Software-Manual operation of guest services, reservations, credit card
processing and time keeping systems can be accomplished with existing personnel
and equipment. Since all known, non-compliant software systems will be replaced
during the first half of 1999, no material impact to the operation of the
Partnership is expected.
Embedded Systems
Contingency plans will be finalized during the second quarter of 1999, when
evaluation of these systems is complete. All known embedded systems can be
manually over-ridden if necessary, in the event of a failure due to a Y2K issue.
Vendors and Suppliers
The Partnership will use alternative vendors and suppliers in the event any one
strategic vendor or supplier is incapable of operating as a result of a Y2K
compliance issue. The Partnership maintains a list of alternative vendors and
suppliers. These vendors and suppliers will be certified as Y2K compliant in the
event their services are required.
SUPPLEMENTAL FINANCIAL INFORMATION RELATING TO THE 1994 AND 1995 COLLATERAL
HOTELS
The following tables set forth, as of April 2, 1999, unaudited selected
financial information with respect to the seventeen hotels collateralizing the
1994 Notes (the "1994 Collateral Hotels") and
<PAGE>
the eight hotels collateralizing the 1995 notes (the "1995 Collateral Hotels")
and the Partnership, excluding Unrestricted Subsidiaries (as defined in the 1994
and 1995 Note 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.
<TABLE>
<CAPTION>
Trailing 12 Months Ended April 2, 1999
----------------------------------------
1994 1995 Total
Collateral Collateral Management Restricted
Hotels Hotels Operations Group
------ ------ ---------- -----
(Dollars in thousands, except operating data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Operating Revenues $140,744 $54,777 $7,172 (a) $202,693
Operating Expenses:
Direct operating costs and expenses 52,245 20,645 -- 72,890
General, administrative, sales and
management expenses(b) 39,070 17,945 (502) (c) 56,513
Repairs and maintenance 5,499 1,484 -- 6,983
Depreciation and amortization 11,985 5,231 420 17,636
-------- ------- ------ --------
Total operating expenses 108,799 45,305 (82) 154,022
-------- ------- ------ --------
Income from operations: $ 31,945 $ 9,472 $7,254 $ 48,671
======== ======= ====== ========
Operating Data:
Occupancy 66.3% 61.5%
Average Daily Room Rate $ 88.71 $ 80.42
RevPAR $ 57.63 $ 49.49
</TABLE>
<TABLE>
<CAPTION>
12 Months Ended January 1, 1999
---------------------------------
1994 1995 Total
Collateral Collateral Management Restricted
Hotels Hotels Operations Group
------ ------ ---------- -----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Operating Revenues $139,721 $57,528 6,783 (a) $204,032
Operating Expenses:
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Direct operating costs and expenses 51,997 21,611 -- 73,608
General Administrative, Sales
and Mgmt expenses (b) 39,292 18,617 (917) (c) 56,992
Repairs and Maintenance 5,448 1,549 -- 6,997
Depreciation and Amortization 11,922 5,402 412 17,736
-------- ------- ------ --------
Total Operating Expense 108,659 47,179 (505) 155,333
-------- ------- ------ --------
Income from Operations $ 31,062 $10,349 $7,288 $ 48,699
======== ======= ====== ========
Operating Data:
Occupancy 66.0% 61.6%
Average Daily Room Rate $ 87.51 $ 80.16
RevPAR $ 56.70 $ 49.34
</TABLE>
(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 and 1995 Collateral 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
<PAGE>
The Partnership is exposed to changes in interest rates primarily as a
result of its investing and financing activities. Investing activity
includes operating cash accounts and investments, with an original maturity
of three months or less, and certain balances of various money market and
common bank accounts. The financing activities of the Partnership are
comprised of long-term fixed and variable rate debt obligations utilized to
fund business operations and maintain liquidity. The following table
presents the principal cash repayments and related weighted average
interest rates by maturity date for the Partnership's long-term fixed and
variable rate debt obligations as of April 2, 1999:
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(in millions)
Fair
There- Value
1999 2000 2001 2002 2003 After Total (d)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt (a)
$300 Million 1/st/ Mortgage Notes $ - $ - $ - $ - $ - $300 $300 $313
Average interest rate (b) 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9%
$90 Million 1/st/ Mortgage Notes $ - $ - $ - $ - $ - $ 90 $ 90 $ 94
Average interest rate (b) 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8%
Other fixed-rate debt obligations $ 29 $ 6 $ 13 $ 30 $ 23 $230 $331 $331
Average interest rate (b) 8.7% 8.4% 8.2% 8.8% 8.6% 8.6% 8.6%
Other variable-rate debt $ 1 $ 1 $ 15 $ 11 $ 9 $ 28 $ 65 $ 65
obligations
Average interest rate (c) 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
</TABLE>
(a) Includes amounts reflected as long-term debt due within one year.
(b) For the long-term fixed rate debt obligations, the weighted average
interest rate is based on the stated rate of the debt that is maturing
in the year reported. The weighted average interest rate excludes the
effect of the amortization of deferred financing costs.
(c) For the long-term variable rate debt obligations, the weighted average
interest rate assumes no changes in interest rates and is based on the
variable rate of the debt, as of April 2, 1999, that is maturing in
the year reported. The weighted average interest rate excludes the
effect of the amortization of deferred financing costs.
(d) The fair values of long-term debt obligations approximate their
respective historical carrying amounts except with respect to the $300
million 1/st/ Mortgage Notes and the $90 million 1/st/ Mortgage Notes.
The fair value of the first mortgage note issues is estimated by
obtaining quotes from brokers.
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
<PAGE>
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.
<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
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
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
Dated: May 17, 1999
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ------------ -------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-02-1999
<EXCHANGE-RATE> 1
<CASH> 30,853
<SECURITIES> 8,119
<RECEIVABLES> 14,477
<ALLOWANCES> 206
<INVENTORY> 1,179
<CURRENT-ASSETS> 55,434
<PP&E> 981,543
<DEPRECIATION> 205,611
<TOTAL-ASSETS> 876,459
<CURRENT-LIABILITIES> 71,326
<BONDS> 755,741
0
0
<COMMON> 0
<OTHER-SE> 41,459
<TOTAL-LIABILITY-AND-EQUITY> 876,459
<SALES> 0
<TOTAL-REVENUES> 83,595
<CGS> 0
<TOTAL-COSTS> 30,935
<OTHER-EXPENSES> 38,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,959
<INCOME-PRETAX> (1,265)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,265)
<DISCONTINUED> 0
<EXTRAORDINARY> (125)
<CHANGES> (1,819)
<NET-INCOME> (3,209)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
