-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N5xWL88FMjHhuIrVUXfVHCvm+6B/hS3g+mRI3CODfpp3Tuik9MGf/eUSsrx1DmDi CZA29zgMvpliKUSEj/laBQ== 0000950134-03-015286.txt : 20031114 0000950134-03-015286.hdr.sgml : 20031114 20031113212308 ACCESSION NUMBER: 0000950134-03-015286 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031003 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAMMONS JOHN Q HOTELS INC CENTRAL INDEX KEY: 0000930796 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 431695093 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13486 FILM NUMBER: 031000134 BUSINESS ADDRESS: STREET 1: 300 JOHN Q HAMMONS PKWY STE 900 CITY: SPRINGFIELD STATE: MO ZIP: 65806 BUSINESS PHONE: 4178644300 MAIL ADDRESS: STREET 1: 300 JOHN Q HAMMONS PKWY STREET 2: SUITE 900 CITY: SPRINGFIELD STATE: MO ZIP: 65806 10-Q 1 c80997e10vq.txt FORM 10-Q 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 October 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 (IRS Employer of incorporation or organization) Identification No.) 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 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Number of shares of Registrant's Class A Common Stock outstanding as of November 12, 2003: 4,808,879 PART I - FINANCIAL INFORMATION Item 1. Financial Statements JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (000's omitted) ASSETS
OCTOBER 3, JANUARY 3, 2003 2003 ----------- ----------- (UNAUDITED) CURRENT ASSETS: Cash and equivalents $ 49,057 $ 21,774 Restricted cash 1,422 1,103 Marketable securities 14,749 12,481 Receivables: Trade, less allowance for doubtful accounts of $231 10,923 9,034 Other 923 441 Management fees - related party 294 152 Inventories 1,109 1,151 Prepaid expenses and other 383 5,884 ----------- ----------- Total current assets 78,860 52,020 ----------- ----------- PROPERTY AND EQUIPMENT, at cost: Land and improvements 62,100 62,035 Buildings and improvements 751,668 751,092 Furniture, fixture and equipment 333,620 327,079 Construction in progress 3,055 98 ----------- ----------- 1,150,443 1,140,304 Less-accumulated depreciation and amortization (409,748) (371,838) ----------- ----------- 740,695 768,466 DEFERRED FINANCING COSTS, FRANCHISE FEES AND OTHER, net, including $19,156 and $15,010 of restricted cash as of October 3, 2003 and January 3, 2003, respectively 41,554 39,486 ----------- ----------- TOTAL ASSETS $ 861,109 $ 859,972 =========== ===========
See Notes to Condensed Consolidated Financial Statements 2 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (000's omitted, except share data) LIABILITIES AND EQUITY
OCTOBER 3, JANUARY 3, 2003 2003 --------- --------- (UNAUDITED) LIABILITIES: Current portion of long-term debt $ 7,576 $ 13,683 Accounts payable 3,915 5,041 Accrued expenses: Payroll and related benefits 8,265 7,199 Sales and property taxes 15,324 12,500 Insurance 2,092 1,903 Interest 17,362 6,382 Utilities, franchise fees and other 9,474 7,764 --------- --------- Total current liabilities 64,008 54,472 Long-term debt 781,597 792,659 Other obligations 2,779 2,444 --------- --------- Total liabilities 848,384 849,575 --------- --------- COMMITMENTS AND CONTINGENCIES MINORITY INTEREST OF HOLDERS OF LIMITED PARTNER UNITS 7,689 5,901 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 shares authorized, none outstanding -- -- Class A common stock, $.01 par value, 40,000,000 shares authorized at October 3, 2003, and January 3, 2003, 6,042,000 shares issued at October 3, 2003, and January 3, 2003, and 4,808,879 and 4,789,729 shares outstanding at October 3, 2003, and January 3, 2003, respectively 60 60 Class B common stock, $.01 par value, 1,000,000 shares authorized, 294,100 shares issued and outstanding 3 3 Paid-in capital 96,395 96,389 Retained deficit, net (85,851) (86,300) Less: treasury stock, at cost; 1,233,121 and 1,252,271 shares at October 3, 2003, and January 3, 2003, respectively (5,582) (5,669) Accumulated other comprehensive income 11 13 --------- --------- Total stockholders' equity 5,036 4,496 --------- --------- TOTAL LIABILITIES AND EQUITY $ 861,109 $ 859,972 ========= =========
See Notes to Condensed Consolidated Financial Statements 3 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (000's omitted, except share data)
THREE MONTHS ENDED NINE MONTHS ENDED OCT. 3, 2003 SEPT. 27, 2002 OCT. 3, 2003 SEPT. 27, 2002 ----------- ----------- ----------- ----------- REVENUES: Rooms $ 70,664 $ 68,938 $ 207,026 $ 205,979 Food and beverage 26,096 24,950 82,625 84,338 Meeting room rental, related party management fee and other 12,091 12,021 37,994 38,182 ----------- ----------- ----------- ----------- Total revenues 108,851 105,909 327,645 328,499 OPERATING EXPENSES: Direct operating costs and expenses: Rooms 17,369 17,731 50,695 51,499 Food and beverage 20,159 20,697 64,047 66,071 Other 706 840 2,099 2,445 General, administrative, sales and management expenses 34,818 34,963 104,640 102,742 Repairs and maintenance 4,595 4,555 13,633 13,512 Depreciation and amortization 12,818 13,203 37,885 39,291 ----------- ----------- ----------- ----------- Total operating costs 90,465 91,989 272,999 275,560 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 18,386 13,920 54,646 52,939 OTHER INCOME (EXPENSE): Other income -- -- 175 -- Interest income 143 308 478 756 Interest expense and amortization of deferred financing fees (17,410) (17,931) (52,617) (53,415) Extinguishment of debt costs (318) (591) (318) (7,383) ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE MINORITY INTEREST AND PROVISION FOR INCOME TAXES 801 (4,294) 2,364 (7,103) Minority interest in (earnings) loss of partnership (608) 3,262 (1,795) 5,396 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 193 (1,032) 569 (1,707) Provision for income taxes (30) (30) (120) (120) ----------- ----------- ----------- ----------- NET INCOME (LOSS) ALLOCABLE TO THE COMPANY $ 163 $ (1,062) $ 449 $ (1,827) =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Net earnings (loss) allocable to Company $ 0.03 $ (0.21) $ 0.09 $ (0.36) =========== =========== =========== =========== BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 5,094,778 5,083,829 5,089,445 5,080,372 =========== =========== =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Net earnings (loss) allocable to Company $ 0.03 $ (0.21) $ 0.09 $ (0.36) =========== =========== =========== =========== DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 5,384,894 5,083,829 5,262,806 5,080,372 =========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements 4 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MINORITY INTEREST AND STOCKHOLDERS' EQUITY (000's omitted)
STOCKHOLDERS' EQUITY -------------------- Accumu- lated Other Compreh- Compreh- ensive Class A Class B Company ensive Income Minority Common Common Paid in Retained Treasury Income (Loss) Interest Stock Stock Capital Deficit Stock (Loss) Total -------- -------- -------- -------- -------- -------- -------- -------- -------- BALANCE, January 3, 2003 $ 5,901 $ 60 $ 3 $ 96,389 $(86,300) $ (5,669) $ 13 4,496 Issuance of common stock -- -- -- 6 -- 87 -- 93 Net income allocable to the Company $ 449 -- -- -- -- 449 -- -- 449 Minority interest in earnings of partnership 1,795 -- -- -- -- -- -- -- Unrealized depreciation on marketable securities net of minority interest (2) (7) -- -- -- -- -- (2) (2) -------- -------- -------- -------- -------- -------- -------- -------- -------- Comprehensive income $ 447 ======== BALANCE, October 3, 2003 (unaudited) $ 7,689 $ 60 $ 3 $ 96,395 $(85,851) $ (5,582) $ 11 $ 5,036 ======== ======== ======== ======== ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements 5 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (000's omitted)
NINE MONTHS ENDED OCT. 3, 2003 SEPT. 27, 2002 ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) allocable to the Company $ 449 $ (1,827) Adjustment to reconcile net income (loss) to cash provided by operating activities: Minority interest in earnings (loss) of partnership 1,795 (5,396) Depreciation, amortization and loan cost amortization 39,285 40,760 Extinguishment of debt costs 318 7,383 Non-cash director compensation 50 50 Changes in certain assets and liabilities Restricted cash (319) (421) Receivables (2,513) (285) Inventories 42 120 Prepaid expenses and other 5,501 1,621 Accounts payable (1,126) (2,069) Accrued expenses 16,769 11,561 Other obligations 335 491 --------- --------- Net cash provided by operating activities 60,586 51,988 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (9,694) (19,786) Franchise fees, restricted cash and other (4,154) (2,839) Purchase of marketable securities (2,277) (5,075) --------- --------- Net cash used in investing activities (16,125) (27,700) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 43 -- Proceeds from borrowing -- 510,000 Repayments of debt (17,169) (510,399) Debt offering costs -- (13,730) Debt redemption costs (52) (4,061) --------- --------- Net cash used in financing activities (17,178) (18,190) --------- --------- Increase in cash and equivalents 27,283 6,098 CASH AND EQUIVALENTS, beginning of period 21,774 32,298 --------- --------- CASH AND EQUIVALENTS, end of period $ 49,057 $ 38,396 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID FOR INTEREST $ 40,318 $ 47,652 ========= ========= UNREALIZED DEPRECIATION OF MARKETABLE SECURITIES $ (9) $ -- ========= =========
See Notes to Condensed Consolidated Financial Statements 6 JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ENTITY MATTERS The accompanying consolidated financial statements include the accounts of John Q. Hammons Hotels, Inc. and John Q. Hammons Hotels, L.P. and subsidiaries (collectively the Company or, as the context may require, John Q. Hammons Hotels, Inc. only). We were incorporated in September 1994 and had no operations or assets prior to our initial public offering of Class A Common Stock in November 1994. Immediately prior to the initial public offering, Mr. John Q. Hammons contributed approximately $5 million in cash to us in exchange for 294,100 shares of Class B Common Stock (which represented approximately 72% of the voting control). We contributed the approximate $96 million of net proceeds from our Class A and Class B Common Stock offerings to John Q. Hammons Hotels, L.P., or the Partnership, in exchange for an approximately 28% general partnership interest. Effective December 30, 2000, we exchanged 1,271,581 general partnership units for funds advanced by the Partnership to us to repurchase our common stock. Effective January 4, 2003, and December 29, 2001, we purchased 7,550 and 11,760 general partner units, respectively from the Partnership. The number of general partnership units exchanged is equivalent to the number of shares repurchased or sold, as outlined by the partnership agreement. As a result, as of October 3, 2003, and September 27, 2002, Mr. Hammons' limited partnership interest was approximately 76% while our general partnership interest was approximately 24%. All significant balances and transactions between the entities and properties have been eliminated. 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 the accounting principles generally accepted in the United States for complete financial statements have been omitted. Interim results may not be indicative of fiscal year performance because of seasonal and other factors. These interim statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended January 3, 2003, which included financial statements for the fiscal years ended January 3, 2003, December 28, 2001 and December 29, 2000. 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 We consider all operating cash accounts and money market investments with an original maturity of three months or less to be cash equivalents. Restricted cash consists of certain funds maintained in escrow for property taxes and certain other obligations. Marketable securities consist of available-for-sale commercial paper and governmental agency obligations which mature or will be available for use in operations in 2003. These securities are valued at current market value. As of October 3, 2003, unrealized holding gains were approximately $46,000, of which approximately $11,000 is allocable to us, with the remainder allocable to the minority interest, and are included as a separate component of shareholders' equity until realized. The provision for income taxes was determined using an effective income tax rate of approximately 5% to provide for estimated state, local and franchise taxes. 3. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed similar to basic except the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. Basic and diluted earnings per share were $0.03 and $0.09, respectively, for the three months and nine months ended October 3, 2003. As of October 3, 2003, the Company had 747,400 options which were not included in the computation of diluted earnings per share since the options would be anti-dilutive. Basic and diluted loss per share for the three and nine months ended September 27, 2002, was $0.21 and $0.36, respectively. The weighted average diluted common shares outstanding for the three and nine months ended September 27, 2002 exclude the dilutive effect of approximately 1.7 million options since such options would have been anti-dilutive; thus, basic and diluted earnings per share for those periods are identical. The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the three months and nine months ended October 3, 2003:
Three Months Ended October 3, 2003 ---------------------------------- (in thousands, except per share data) Income Shares Per Share (Numerator) (Denominator) Amount ---------------- ----------------- ----------------- Basic earnings per share $ 163 5,095 $0.03 ================= Effect of dilutive securities: Options 290 ---------------- ----------------- Diluted earnings per share $ 163 5,385 $0.03 ================ ================= =================
8
Nine Months Ended October 3, 2003 --------------------------------- (in thousands, except per share data) Income Shares Per Share (Numerator) (Denominator) Amount ---------------- ----------------- ----------------- Basic earnings per share $ 449 5,089 $0.09 ================= Effect of dilutive securities: Options 174 ---------------- ----------------- Diluted earnings per share $ 449 5,263 $0.09 ================ ================= =================
4. STOCK OPTIONS We account for our stock-based compensation plans according to the intrinsic method under APB Opinion No. 25, under which we have recognized expense for certain stock option grants. In accordance with Statement of Financial Accounting Standard No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," we are required, at a minimum, to report pro forma disclosures of expense for stock-based awards based on their fair values. Had compensation cost been determined consistent with SFAS No. 123, our net income (loss) and basic and diluted earnings (loss) per share for the three months and nine months ended October 3, 2003, and September 27, 2002, would have been as follows:
THREE MONTHS ENDED NINE MONTHS ENDED OCT. 3, SEPT. 27, OCT. 3, SEPT. 27, 2003 2002 2003 2002 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income (loss) As reported $ 163 ($ 1,062) $ 449 ($ 1,827) Deduct - total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (53) (45) (142) (186) --------- --------- --------- --------- Pro forma $ 110 ($ 1,107) $ 307 ($ 2,013) ========= ========= ========= ========= Basic earnings (loss) per share As reported $ 0.03 ($ 0.21) $ 0.09 ($ 0.36) Deduct - total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (0.01) (0.01) (0.03) (0.04) --------- --------- --------- --------- Pro forma $ 0.02 ($ 0.22) $ 0.06 ($ 0.40) ========= ========= ========= ========= Diluted earnings (loss) per share As reported $ 0.03 ($ 0.21) $ 0.09 ($ 0.36) Deduct - total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (0.01) (0.01) (0.03) (0.04) --------- --------- --------- --------- Pro forma $ 0.02 ($ 0.22) $ 0.06 ($ 0.40) ========= ========= ========= =========
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience. 9 5. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We adopted this statement in the first quarter of 2003, with no material impact on our financial position, results of operations or cash flows. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which would require applying the criteria under Opinion 30 to determine whether or not the gains and losses related to the extinguishment of debt should be classified as extraordinary items. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item shall be reclassified. This statement amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. We adopted this statement in the first quarter of 2003, and reclassified our 2002 extraordinary item to extinguishment of debt costs classified in other income (expense). In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, or other exit or disposal activity. We adopted this standard in the first quarter of 2003, with no material impact on our financial position, results of operations or cash flows. In January 2003, the FASB issued Interpretation No. 46 (FIN 46) "Consolidation of Variable Interest Entities." Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. A public entity with a variable interest in a variable interest entity created before February 1, 2003 shall apply all the provisions of this interpretation to that entity no later than the first interim or annual reporting period ending after December 15, 2003. The related disclosure requirements were effective immediately. Management does not believe that the adoption of this interpretation will have a material impact on our financial position, results of operations or cash flows. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." This Statement establishes 10 standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective for financial instruments entered into or modified after May 31, 2003, and was effective on July 1, 2003, for financial instruments held prior to issuance of this statement. We adopted this statement in the third quarter of 2003, with no material impact on our financial position, results of operation or cash flows. 6. LONG-TERM DEBT Since the beginning of fiscal 2003, we retired a $6.3 million note (Springdale Hampton Inn) at 9-1/4% set to mature in the fourth quarter of 2003, as well as a $5.2 million note (Denver Airport Holiday Inn) at 7-1/8%, due in the third quarter of 2015, bringing the total debt reduction for the first nine months of 2003 to slightly over $17 million. We recorded $0.3 million in extinguishment of debt costs related to these retirements. In May 2002, we refinanced our $300 million 8-7/8% First Mortgage Notes due February 2004, and our $90 million 9-3/4% First Mortgage Notes due April 2005, as well as construction financing on five of our properties, with new $510 million 8-7/8% First Mortgage Notes, interest payable May 15th and November 15th, and principal due May 2012. In conjunction with this refinancing we incurred aggregate early extinguishment of debt charges of approximately $7.4 million. These charges were recorded in the second quarter of 2002 ($6.792 million) and the third quarter of 2002 ($0.591 million), as these costs became known. 7. ASSETS CARRYING VALUE We review the carrying value of our long-lived assets when events and circumstances occur which indicate that the carrying value of an asset may not be recoverable. Given the current outlook with respect to our World Golf Village property, we commissioned an appraisal of the property to be completed prior to year-end. In the event the carrying value of the property exceeds the fair market value less the costs to sell, we will record a write down. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL. Unless the context indicates or requires otherwise, the terms "we," "us," "our" and other references to our company refer to John Q. Hammons Hotels, Inc. and John Q. Hammons Hotels, L.P., including all of our subsidiaries. Our consolidated financial statements include revenues from our owned hotels and management fee revenues for providing management services to the managed hotels (owned or directly controlled by Mr. Hammons). References to our hotels include both our owned hotels and our managed hotels. We derive revenues from the owned hotels from rooms, food and beverage, meeting rooms and other revenues. Our beverage revenues include only revenues from the sale of alcoholic beverages, while we show revenues from the sale of non-alcoholic beverages as part of food revenue. Direct operating costs and expenses include expenses we incur in connection with the direct operation of rooms, food and beverage and telephones. Our general, 11 administrative, sales and management services expenses include expenses incurred for franchise fees, administrative, sales and marketing, utilities, insurance, property taxes, rent, management services and other expenses. 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 in-house development services, which include 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. These costs are amortized over a five-year contract period, beginning upon the opening of the hotels. RESULTS OF OPERATIONS - THREE-MONTH PERIOD The following discussion and analysis addresses results of operations for the three-month periods ended October 3, 2003 (the "2003 Quarter") and September 27, 2002 (the "2002 Quarter"). The results of operations for the three-month and nine-month periods ended October 3, 2003 are not indicative of the results to be expected for the full year. Total revenues for the 2003 Quarter were $108.9 million, an increase of $3.0 million, or 2.8%, compared to the 2002 Quarter, primarily as a result of slightly improved general economic conditions, reflected in higher revenues in all three areas of our business. Rooms revenues increased $1.8 million, or 2.6%, from the 2002 Quarter, but decreased as a percentage of total revenues, to 64.9% from 65.1%. The increase was primarily due to increases in the discount (AAA, AARP, travel agencies, etc.) and association market segments of our business. Our average room rate increased 2.4%, to $99.40 compared to the 2002 Quarter average room rate of $97.09, as average room rates for all market segments increased from the 2002 Quarter. In comparison, the average room rate for the hotel industry was $83.44 in the 2003 Quarter, up 0.4% from the 2002 Quarter, based on information from Smith Travel Research. Our occupancy for the 2003 Quarter increased to 67.2%, or 0.1 percentage point compared to the 2002 Quarter. Occupancy for the hotel industry was 65.6%, up 2.0% from the 2002 Quarter. Our Revenue Per Available Room (RevPAR) was $66.78 in the 2003 Quarter, up 2.5% from $65.12 in the 2002 Quarter. RevPAR for the hotel industry was $54.71, up 2.3% from the 2002 Quarter. Food and beverage revenues increased $1.1 million, or 4.4%, compared to the 2002 Quarter, and increased as a percentage of total revenues, to 24.0% from 23.6% in the 2002 Quarter. The increase was related to the increase in travel in the association market segments of our business described above. Meeting room rental, related party management fee and other revenues increased $0.1 million, or 0.8%, from the 2002 Quarter, but decreased slightly as a percentage of revenues, to 11.1% from 11.3%. 12 Rooms operating expenses decreased $0.3 million, or 1.7%, compared to the 2002 Quarter, and decreased as a percentage of rooms revenues to 24.6% from 25.7%. The decrease was primarily attributable to favorable workers' compensation loss experience, compared to the 2002 Quarter. Food and beverage operating expenses decreased $0.5 million, or 2.4%, compared to the 2002 Quarter, and decreased as a percentage of food and beverage revenues, to 77.4% from 82.8%. The decrease was primarily attributable to the favorable workers' compensation loss experience described above, as well as improved management of labor expenses. Other operating expenses decreased slightly to $0.7 million compared to the 2002 Quarter, and decreased as a percentage of meeting room rental, related party management fee and other revenues to 5.8% from 6.7%. General, administrative and sales expenses decreased $0.2 million, or 0.6%, from the 2002 Quarter, and decreased as a percentage of total revenues to 32.0% from 33.1%. The decrease was primarily attributable to decreases in franchise fees (related to the termination charges incurred in changing the brand name for one of our hotels in the 2002 Quarter) and property insurance costs, partially offset by increases in credit card commissions, costs associated with franchise frequent traveler programs and utility costs. Repairs and maintenance expenses remained stable at $4.6 million compared to the 2002 Quarter, and decreased slightly as a percentage of revenues, to 4.2% from 4.3% in the 2002 Quarter. Depreciation and amortization expenses decreased by $0.4 million, or 3.0%, compared to the 2002 Quarter, and decreased as a percentage of revenues to 11.8% from 12.5%. The dollar decrease related to our cessation of new hotel development. Income from operations increased by $4.5 million, or 32.4%, compared to the 2002 Quarter, and increased as a percentage of revenues to 16.9% from 13.1%. The increase is attributable to, among other factors, increased revenues, improved cost controls, favorable workers' compensation loss experience and reduced property insurance costs. Income (loss) before minority interest and provision for income taxes was $0.8 million of income in the 2003 Quarter, compared to a loss of $4.3 million in the 2002 Quarter. Net income (loss) allocable to the Company was $0.2 million of income in the 2003 Quarter compared to a net loss allocable to the Company of $1.1 million in the 2002 Quarter. Basic and diluted earnings (loss) per share in the 2003 Quarter were $0.03 of earnings, compared to basic and diluted loss of $0.21 per share in the 2002 Quarter. RESULTS OF OPERATIONS - NINE-MONTH PERIOD The following discussion addresses results of operations for the nine-month periods ended October 3, 2003 (the "2003 Nine Months"), and September 27, 2002 (the "2002 Nine Months"). 13 Total revenues decreased slightly to $327.6 million in the 2003 Nine Months from $328.5 million in the 2002 Nine Months, a decrease of $0.9 million or 0.3%. The decrease is attributable to ongoing weaknesses in the association and corporate group travel market segments of our business during the first six months of 2003, partially offset by a slight increase in these market segments during the 2003 Quarter. Rooms revenues increased to $207.0 million in the 2003 Nine Months from $206.0 million in the 2002 Nine Months, an increase of $1.0 million, or 0.5%, reflected primarily in the discount market segment of our business. Rooms revenues as a percentage of total revenues increased, to 63.2%, compared to 62.7% in the 2002 Nine Months. Our average room rate increased to $99.98 in the 2003 Nine Months from $98.43 in the 2002 Nine Months, an increase of $1.55, or 1.6%. Occupancy decreased to 65.2% in the 2003 Nine Months from 65.9% in the 2002 Nine Months, a decrease of 0.7 percentage point. Occupancy for the hotel industry was 60.7%, down 0.3% from the 2002 Nine Months. Our revenue per available room (RevPAR) was $65.21 in the 2003 Nine Months, up 0.6% from the 2002 Nine Months. RevPAR for the hotel industry was $50.67, down 0.8% from the 2002 Nine Months. Food and beverage revenues decreased to $82.6 million in the 2003 Nine Months from $84.3 million in the 2002 Nine Months, a decrease of $1.7 million, or 2.0%, and decreased as a percentage of total revenues to 25.2% from 25.7% in the 2002 Nine Months. The decrease related to the decreased association and corporate group travel in the first six months of 2003, partially offset by a slight increase in these market segments during the 2003 Quarter. Meeting room rental, related party management fee and other revenues decreased to $38.0 million in the 2003 Nine Months from $38.2 million in the 2002 Nine Months, a decrease of $0.2 million, or 0.5%, and remained stable as a percentage of total revenues, at 11.6%. The dollar decrease was the result of decreased association and corporate group travel in the first six months of 2003, partially offset by a slight increase in these market segments during the 2003 Quarter. Rooms operating expenses decreased to $50.7 million in the 2003 Nine Months from $51.5 million in the 2002 Nine Months, a decrease of $0.8 million, or 1.6%, and decreased as a percentage of rooms revenue, to 24.5% from 25.0% in the 2002 Nine Months. The decrease was primarily attributable to reduced labor costs and favorable workers' compensation loss experience compared to the 2002 Nine Months. Food and beverage operating expenses decreased to $64.0 million in the 2003 Nine Months from $66.1 million in the 2002 Nine Months, a decrease of $2.1 million, or 3.2% as the result of decreased food and beverage revenues. These expenses also decreased as a percentage of food and beverages revenues in the 2003 Nine Months to 77.5%, from 78.4% in the 2002 Nine Months. Other operating expenses decreased to $2.1 million in the 2003 Nine Months, from $2.4 million in the 2002 Nine Months, and decreased as a percentage of meeting room rental, related party management fee and other income, to 5.5% in the 2003 Nine Months from 6.3% in the 2002 Nine Months. 14 General, administrative and sales expenses increased to $104.6 million in the 2003 Nine Months from $102.7 million in the 2002 Nine Months, an increase of $1.9 million, or 1.9%, and increased as a percentage of total revenues to 31.9% from 31.3% in the 2002 Nine Months. The increase was primarily attributable to increases in costs associated with franchise frequent traveler programs, utilities and credit card commissions, partially offset by decreases in franchise fees, property taxes and property insurance costs. Repairs and maintenance expenses increased slightly to $13.6 million compared to $13.5 million in the 2002 Nine Months, and increased slightly as a percentage of revenues to 4.2% from 4.1% in the 2002 Nine Months. Depreciation and amortization expenses decreased to $37.9 million in the 2003 Nine Months from $39.3 million in the 2002 Nine Months, a decrease of $1.4 million, or 3.6%, and decreased as a percentage of total revenues to 11.6% from 12.0% in the 2002 Nine Months. The decrease was related to cessation of new hotel development. Income from operations was $54.6 million in the 2003 Nine Months compared to $52.9 million in the 2002 Nine Months, an increase of $1.7 million, or 3.2%. As a percentage of revenue, income from operations increased to 16.7% in the 2003 Nine Months from 16.1% in the 2002 Nine Months, as the result of reduced costs in several categories, discussed above. Income (loss) before minority interest and provision for income taxes was $2.4 million of income in the 2003 Nine Months, compared to a $7.1 million loss in the 2002 Nine Months. The variation related to the effect of expenses for the extinguishment of debt in the 2002 Nine Months (the refinancing of our outstanding 8-7/8% and 9-3/4% First Mortgage Notes for new 8-7/8% First Mortgage Notes due 2012), in addition to the items discussed above. Net income (loss) allocable to the Company was $0.4 million of income in the 2003 Nine Months compared to a net loss allocable to the Company of $1.8 million in the 2002 Nine Months, due primarily to the extinguishment of debt and other cost reduction items discussed above. Basic and diluted earnings (loss) per share were earnings of $0.09 in the 2003 Nine Months, compared to basic and diluted loss per share of $0.36 for the 2002 Nine Months. LIQUIDITY AND CAPITAL RESOURCES In general, we have financed our operations through internal cash flow, loans from financial institutions, the issuance of public and private debt and equity and the issuance of industrial revenue bonds. Our principal uses of cash are to pay operating expenses, to service debt and to fund capital expenditures. At October 3, 2003, we had $49.1 million of cash and equivalents and $14.7 million of marketable securities, compared to $21.8 million and $12.5 million, respectively, at the end of 2002. Such amounts are available for our working capital requirements and capital expenditures. 15 Cash from operating activities increased to $60.6 million for the 2003 Nine Months from $52.0 million for the 2002 Nine Months, primarily attributable to the increase in net income and decrease in debt extinguishment costs and other favorable changes in certain assets and liabilities. We incurred capital expenditures of $9.7 million and $19.8 million, respectively, for the 2003 Nine Months and the 2002 Nine Months. Approximately $4.2 million of the expenditures in the 2002 Nine Months was related to correcting the moisture related issues discussed below. Capital expenditures typically include capital improvements on existing hotel properties. During fiscal 2000, we initiated claims against certain of our construction service providers, as well as with our insurance carrier. These claims resulted from costs we incurred and expected to incur to address moisture related problems caused by water intrusion through defective windows. In December 2001, we initiated legal actions in an effort to collect claims previously submitted. Subsequent to the filing of the legal action, the insurance carrier notified us that a portion of our claims had been denied. As of October 3, 2003, we had incurred approximately $11.8 million of an estimated $12.3 million of costs to correct the underlying moisture problem. During the 2003 Quarter, summary judgment was granted to our insurance carrier in one action, which is currently on appeal. Due to the uncertain outcome of this appeal, the parties have agreed to a settlement conference in November 2003, to attempt to dispose of all issues against the insurance carrier. Summary judgment was also granted to one of our window manufacturers and we are in the process of appealing that decision. We plan to continue to vigorously pursue collection of these costs, although there can be no assurance that we will be successful. Our total cumulative depreciation charge through October 3, 2003, was $7.6 million, which we recorded in fiscal 2001 to reserve the net historical costs of the hotel property assets refurbished absent any recoveries. To the extent we realize recoveries we will record them as a component of other income. At October 3, 2003, our total debt was $789.2 million compared with $806.3 million at the end of 2002. The decrease is attributable to the $17.1 million reduction of existing debt since the end of 2002 (including the prepayment of a 9-1/4% note for $6.3 million due in the fourth quarter of 2003 and prepayment of a 7-1/8% note for $5.2 million due in third quarter of 2015). The current portion of long-term debt was $7.6 million, compared with $13.7 million at the end of 2002. For the 2003 Nine Months, we incurred $0.3 million in early extinguishment of debt charges. During the second quarter of 2002, we completed the refinancing of our long-term debt, primarily our $300 million 8-7/8% First Mortgage Notes due February 2004 and our $90 million 9-3/4% First Mortgage Notes due April 2005, as well as $30.1 million of short-term debt, with new $510 million 8-7/8% First Mortgage Notes due May 2012. We expect 2003 capital requirements to be funded by cash and cash flow from operations. Based upon current plans, we anticipate that our capital resources will be adequate to satisfy our 2003 capital requirements for normal recurring capital improvement projects. NEW ACCOUNTING PRONOUNCEMENTS 16 In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We adopted this statement in the first quarter of 2003, with no material impact on our financial position, results of operations or cash flows. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which would require applying the criteria under Opinion 30 to determine whether or not the gains and losses related to the extinguishment of debt should be classified as extraordinary items. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item shall be reclassified. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. We adopted this statement in the first quarter of 2003, and reclassified our 2002 extraordinary item to extinguishment of debt costs classified in other income (expense). In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, or other exit or disposal activity. We adopted this standard in the first quarter of 2003, with no material impact on our financial position, results of operations or cash flows. In January 2003, the FASB issued Interpretation No. 46 (FIN 46) "Consolidation of Variable Interest Entities." Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. A public entity with a variable interest in a variable interest entity created before February 1, 2003 shall apply all the provisions of this interpretation to that entity no later than the first interim or annual reporting period ending after December 15, 2003. The related disclosure requirements were effective immediately. Management does not believe that the adoption of this interpretation will have a material impact on our financial position, results of operations or cash flows. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective for financial instruments entered into or modified after May 31, 2003, and was effective on July 1, 2003, for 17 financial instruments held prior to issuance of this statement. We adopted this statement in the third quarter of 2003, with no material impact on our financial position, results of operation or cash flows. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those related to bad debts, investments, valuation of long-lived assets, net deferred tax assets, self-insurance reserves, contingencies and litigation. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We believe the following critical accounting policies, among others, affect our more significant estimates and assumptions used in preparing our consolidated financial statements. Actual results could differ from our estimates and assumptions. Trade receivables are reflected net of an estimated allowance for doubtful accounts. This estimate is based primarily on historical experience and assumptions with respect to future payment trends. Property and equipment are stated at cost less accumulated depreciation. The assessment of long-lived assets for possible impairment requires us to make certain judgments, including real estate values and estimated future cash flow from the respective properties and investments. We review the recoverability of our long-lived assets when events or circumstances indicate that the carrying amount of an asset may not be recoverable. Given the current outlook with respect to our World Golf Village property, we commissioned an appraisal of the property to be completed prior to year-end. In the event the carrying value of the property exceeds the fair market value less the costs to sell, we will record a write down. Our deferred financing costs, franchise fees and other assets include management and franchise contracts and leases. The value of our management and franchise contracts and leases are amortized on a straight-line method over the life of the respective agreement. The assessment of management and franchise contracts and leases requires us to make certain judgments, including estimated future cash flow from the respective properties. We are self-insured for various levels of general liability, workers' compensation and employee medical coverages. Estimated costs related to these self insurance programs are accrued based on known claims and projected settlements of unasserted claims. Subsequent changes in, among others, unasserted claims, claim cost, claim frequency, as well as changes in actual experience, could cause these estimates to change. We recognize revenues from our rooms, catering and restaurant facilities as earned on the close of business each day. 18 FORWARD-LOOKING STATEMENTS This Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, regarding, among other things, our operations outlook, business strategy, prospects and financial position. These statements contain the words "believe," "anticipate," "estimate," "expect," "project," "intend," "may," "will," and similar words. These forward-looking statements are not guarantees of future performance, and 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: - General economic conditions, including the duration and severity of the current economic slowdown and the pace at which the lodging industry adjusts to the continuing war on terrorism; - The impact of any serious communicable diseases on travel, including any increase or further spread in Severe Acute Respiratory Syndrome (SARS); - Competition; - Changes in operating costs, particularly energy and labor costs; - Unexpected events, such as terrorist attacks or outbreaks of war; - 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 applicable state and federal regulations. These risks and uncertainties, as well as the risk factors discussed in our Form 10-K, should be considered in evaluating any forward looking statements contained in this Form 10-Q. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to changes in interest rates primarily as a result of our 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. Our financing activities 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 our long-term fixed and variable-rate debt obligations as of October 3, 2003: 19 EXPECTED MATURITY DATE (in millions)
Fair There- Value 2003(d) 2004 2005 2006 2007 After Total (e) ------- ---- ---- ---- ---- ----- ----- --- Long-Term Debt(a) $510 Million 1st Mortgage Notes $ -- $ -- $ -- $ -- $ -- $ 499 $ 499 $ 551 Average interest rate(b) 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% Other fixed-rate debt obligations $ 6 $ 7 $ 8 $ 28 $ 41 $ 163 $ 253 $ 252 Average interest rate(b) 8.3% 8.3% 8.3% 7.8% 8.4% 8.7% 8.5% Other variable-rate debt obligations $ 1 $ 1 $ 1 $ 10 $ 1 $ 23 $ 37 $ 37 Average interest rate(c) 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6%
(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 October 3, 2003, that is maturing in the year reported. The weighted average interest rate excludes the effect of the amortization of deferred financing costs. (d) The 2003 balances include actual and projected principal repayments and weighted average interest rates. (e) The fair values of long-term debt obligations approximate their respective historical carrying amounts except with respect to the $510 million First Mortgage Notes. The fair value of the First Mortgage Notes is estimated by obtaining quotes from brokers. A one percentage point change in the par or the then-current premium or discount quote received for the $510 million First Mortgage Notes would have an effect of approximately $5 million. A one percentage point change in the 8-7/8% rate used to calculate the fair value of other fixed rate debt would change its estimated fair value by approximately $13 million. ITEM 4. 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(d) and 15d-14(d) under the Securities Exchange Act of 1934) as of October 3, 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. 20 PART II. OTHER INFORMATION AND SIGNATURES ITEM 1. Legal Proceedings Not 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. (b) Reports on Form 8-K Form 8-K to furnish Press Release announcing October 3, 2003 results, filed November 12, 2003 21 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. JOHN Q. HAMMONS HOTELS, INC. By: /s/ John Q. Hammons ----------------------------------- John Q. Hammons Chairman, Founder, and Chief Executive Officer By: /s/ Paul E. Muellner ----------------------------------- Paul E. Muellner Chief Financial Officer Dated: November 14, 2003 22 EXHIBIT INDEX
EXHIBIT NO. TITLE - ----------- ----- 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
23 EX-31.1 3 c80997exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, John Q. Hammons, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003 of John Q. Hammons Hotels, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ John Q. Hammons ----------------------------------- John Q. Hammons Chief Executive Officer 25 EX-31.2 4 c80997exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, Paul E. Muellner, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003 of John Q. Hammons Hotels, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Paul E. Muellner ----------------------------------- Paul E. Muellner Chief Financial Officer 27 EX-32 5 c80997exv32.txt SECTION 1350 CERTIFICATION OF CEO AND CFO EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of John Q. Hammons Hotels, Inc. on Form 10-Q for the period ended October 3, 2003, as filed with the Securities and Exchange Commission, we, John Q. Hammons, Chief Executive Officer, and Paul E. Muellner, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Quarterly Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operation of John Q. Hammons Hotels, Inc. A signed original of this written statement required by Section 906 has been provided to John Q. Hammons Hotels, Inc. and will be retained by John Q. Hammons Hotels, Inc. and furnished to the Securities and Exchange Commission or its Staff upon request. Dated: November 14, 2003 /s/ John Q. Hammons ----------------------------------- John Q. Hammons /s/ Paul E. Muellner ----------------------------------- Paul E. Muellner 28 -----END PRIVACY-ENHANCED MESSAGE-----