1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1995
Commission File Number 2-76543
SUPER 8 MOTELS NORTHWEST II,
A Washington limited partnership
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1172558
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
7515 Terminal St. S.W., Tumwater, WA 98501
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (360) 943-8000
Securities registered pursuant to section 12 (g) of the Act:
TITLE OF CLASS
Limited Partnership Units
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
2
There has been no market for limited partnership units since the initial
offering of limited partnership units was completed in 1984, therefore the
market value of limited partnership units is unknown.
DOCUMENTS INCORPORATED BY REFERENCE
Partnership's Audited Financial Statements.
Partnership's January, 1996 newsletter to limited partners.
Also incorporated by reference are the partnership agreement, franchise
agreement and property management agreements to which the Partnership is a party
and which were included with and/or described in the original offering materials
for the Partnership, as well as all appropriate exhibits delineated in Part III
hereof.
PAGE 2
3
PART I
ITEM 1.
Business
(a) General Development of Business
Super 8 Motels Northwest II, a Washington limited partnership (the
"Partnership"), was formed to invest in and operate three "economy" motels to be
located in the states of Washington and Oregon, as a franchise of Super 8
Motels, Inc. The Partnership does not own any interest in Super 8 Motels, Inc.,
the national franchiser, or in The Peninsula Group Incorporated, the regional
sub-franchiser and one of the General Partners of the Partnership. The other
General Partner is Gerald L. Whitcomb.
The Partnership was formed in March, 1982. The Limited Partnership Units of the
Partnership (the "Units") were offered and sold by selected broker-dealers on a
best efforts basis in the states of Washington, Oregon, Montana, Idaho, Alaska,
Wisconsin, Illinois and Georgia.
Sale of the Units began on May 8, 1982. Funds were released from impound on
January 12, 1983, when gross sales of the Units reached $950,000. The
Partnership Agreement was amended in May 1983 to provide for a gross offering of
$6,602,000. At December 31, 1983, the Partnership had raised a total of
$2,710,000. On May 8, 1984, the offering was closed. In the period January 1,
1984, through May 8, 1984, the Partnership raised $1,342,000 in additional
limited partnership subscriptions. The final results of the offering were 4,052
Units sold yielding gross offering proceeds of $4,052,000. This was $2,550,000
under the initially intended subscription amount.
To achieve the Partnership's objective of developing three Super 8 Motel
properties, long-term mortgage financing in the amount of $2,200,000 was
arranged through Sterling Savings and Association of Chehalis, Washington
(formerly Central Evergreen Savings and Loan). This debt is secured by the
Portland property and assignment of the Union Gap (Yakima) land lease (see Item
2a).
(b) Financial Information About Industry Segments.
Not applicable as the registrant operates in a single industry (motels) and
within that industry only in the economy category. For financial information
generally, see "Financial Statements."
(c) Narrative Description of Business.
The motel properties were developed and are being operated as economy motels in
the locations indicated below. The motel properties are franchisees of the
national "Super 8" motel chain. The economy motel concept provides for a clean,
comfortable average-size motel room that has all the basic amenities required by
the traveling public at a price lower than that of most surrounding motel
properties of equal quality.
PAGE 3
4
All guest rooms are equipped with direct-dial telephone, color television and
tub/shower combination, and are fully carpeted, sound proofed and insulated.
Guests are allowed to use major national credit cards and cash checks with
V.I.P. Club membership. Vending machines are also available.
Each property has interior hallways, a lobby with a manager's office, an
employee lounge, an in-house laundry, a guest laundry facility and conference
room and a manager's apartment. No restaurants are located on any of the
properties,
The 77 room Bremerton property services the military-based City of Bremerton,
Washington.
The 80 room Portland property's proximity to the Portland International Airport
allows it to provide free transportation to and from the airport, courtesy
telephone and long term parking privileges. The property has one mini-suite and
a small conference room available.
The 95 room Union Gap property features a year-round indoor swimming pool, one
mini-suite, a medium-size conference room, guest laundry facilities and special
parking for commercial trucks.
Each of the properties historically experiences seasonal fluctuations in
occupancy, the low point occurring in the winter months and peaking in the late
summer.
The motels provide full or part-time employment for approximately 57 people
(Bremerton 15, Portland 21, Union Gap 21).
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The Partnership operates only in one geographic area, the Pacific Northwest
(Washington and Oregon states). For financial information generally, see
"Financial Statements."
ITEM 2.
Properties
(a) Location and General Characteristics
In 1983, the Partnership leased the Bremerton, Washington 1.75 acre site located
on State Road 3 and Kitsap Way. The lease has a 37 year term. Adjacent to the
site is a 24 hour family restaurant.
In 1983, the Partnership purchased the Portland, Oregon site for a purchase
price of $720,000. This site is at the interchange of Interstate 205 and Airport
Way, approximately one mile east of the Portland International Airport.
In 1983, the Partnership leased the Union Gap, Washington site located at the
intersection of 1-82 and Rudkin Road just south of Yakima, Washington. The lease
is for a term of 30 years.
The Bremerton motel opened on October 23, 1983, the Portland motel on May 25,
1984 and the Union Gap motel on September 14, 1984.
PAGE 4
5
The motels are of frame construction with stucco exteriors and tile roofs and
have full fire alarm systems. In addition, the Portland motel is fully equipped
with a fire protection sprinkler system. Heating and cooling is by individual
room through the wall heat pumps.
The approximate size of the buildings is as follows:
Bremerton 29,740 square feet
Portland 31,900 square feet
Union Gap 39,190 square feet
Additionally, significant environmental contamination including ground water
contamination, has been discovered within the Airport Way Urban Renewal Area at
the former ICN site, a medical manufacturing firm. ICN, which is no longer in
existence, potentially discharged hazardous substances into wells which have
contaminated the ground water. Such contamination may or may not have affected
the Partnership's property. POC has orally advised the Partnership that it
believes it is unlikely that the Partnership's property is contaminated.
A 33 room addition to the Union Gap property opened for occupancy on January 15,
1991. Total cost of the addition (including furniture and fixtures) was
$875,000. For utilization of these properties see Item 7.
See Item 1 (c) for further information on each property.
ITEM 3.
Legal Proceedings
The Partnership is not party to any material legal proceedings.
ITEM 4
Submission of matters for a Vote of Security Holders
None.
PAGE 5
6
PART II
ITEM 5.
Market for the Registrant's Common Stock
Related Security Holder Matters
The units are owned by approximately 850 investors.
There is no established public trading market for the units and no significant
transactions in units between a willing buyer and a willing seller have occurred
since the original offering of limited partnership units. Because of this, the
Partnership is unable to ascertain a fair market value for the units.
Distributions of cash to the Limited Partners made during 1995 totaled
$1,174,026. This was an increase of $414,276 from the $759,750 cash distribution
made to the Limited Partners in 1994.
ITEM 6.
Selected Financial Data*
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total Sales $3,277,174 $3,236,567 $2,938,505 $2,877,705 $2,656,748
Net Income (Loss)* $705,904 $771,673 $368,234 $184,726 $283,044
Net Income (Loss)* per Unit $172.47 $188.54 $89.99 $45.13 $69.85
Total Assets** $4,391,793 $4,657,736 $4,492,431 $4,626,608 $4,780,886
Long-Term Debt* $3,988,018 $3,825,986 $3,719,527 $3,639,590 $3,518,153
Cash Distribution Per Unit $289.74 $187.50 $137.50 $125.00 $100.00
*In filings prior to the year ended December 31, 1994 with the United States
Securities and Exchange Commission (the "SEC"), and in the Partnership's prior
years' financial statements, the Partnership did not accrue unpaid property
management fees due to the uncertainty of payment. During the year ended
December 31, 1994, the partnership changed its method of accounting for such
fees and the above information was restated for 1993, 1992, 1991 to account for
such fees so that Net Income, Long Term Debt and Net Income Per Unit was revised
to accrue the expense when incurred and reflect the associated liability on the
balance sheet.
**Net of amortization and depreciation
PAGE 6
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Detailed financial data is provided in the form of audited financial statements
as of December 31, 1995 and 1994 and for each of the three years ended December
31, 1995, 1994, and 1993. These statements show the results of operations,
changes in partners' equity, cash flows and additional financial disclosures.
ITEM 7.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity of the Partnership continued to be strong for the year ended December
31, 1995. The current ratio at December 31, 1995, was 2.57:1 and working capital
consisted of $540,908.
The interest rate on the Partnership's long term debt is tied to a treasury bill
index plus margin of 3.5% per annum. The long term interest rate on debt
encumbering the Portland property was changed to 9.0% per annum on September 1,
1994 and will remain at this level through August of 1995 when it will be
adjusted, again based upon treasury bill rates. The interest rate was 6.875% per
annum through August 31, 1994, prior to the annual adjustment.
Interest rate on the long term loan funding the Yakima addition is variable
based on the treasury bill index plus 2.5% per annum, but was fixed through
December 31, 1995 at 10.25% per annum.
The economic growth occurring throughout the regional economy resulted in stable
occupancy at each of the Partnership's three properties.
Balance Sheet data 1995 1994 1993
---- ---- ----
Current Assets $885,576 $974,499 $626,057
Current Liabilities $344,668 $292,663 $238,548
Current Ratio 2.57:1 3.32:1 2.62:1
At December 31, 1995, the Bremerton motel had completed its twelfth full year of
operation, Portland and Yakima their eleventh full year of operations.
PAGE 7
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Comparative operational statistics:
1995 1994 1993
---- ---- ----
Bremerton
Occupancy 64% 65% 58%
Rented rooms 18,028 18,304 16,248
Gross room rate* $44.22 $42.20 $44.07
Portland
Occupancy 82% 80% 76%
Rented rooms 23,649 23,376 22,011
Gross room rate* $55.66 $53.26 $54.50
Yakima
Occupancy 72% 78% 73%
Rented rooms 24,860 27,142 25,131
Gross room rate* $46.81 $44.94 $47.52
Total
Occupancy 73% 75% 69%
Rented rooms 66,537 68,822 63,390
Gross room rate* $49.25 $47.03 $49.05
*"Gross Room Rate" is defined as total room revenue divided by total rooms sold.
Rented rooms decreased from 68,822 during 1994 to 66,537, or a decrease of 2,285
rented rooms or a percentage decrease of 3.3%. Management believes that the
properties could have been more aggressive in 1995 in their marketing efforts
and has taken steps to attempt to reverse this downward trend.
Total occupancy declined slightly from 75% during 1994 to 73% during 1995, a
decrease of 2%. The decline in rented rooms was offset by a $2.22 increase in
gross room rates which resulted in a $40,607 increase in gross room revenues
during 1995 from $3,236,567 to $3,277,174.
Net income decreased $65,769 from $771,673 to $705,904, a decrease of 8.52% from
1994 net income. The slight decrease in net income resulted almost exclusively
from increases in direct operating, interest and general and administrative
expenses.
In 1995, the Bremerton property entered into a contract with the U.S. Navy to
rent approximately 42 rooms through late Fall, 1996, in order to berth sailors
from the U.S.S. Abraham Lincoln while the ship was undergoing repairs in
Bremerton. This contract should significantly increase occupancy in the
Bremerton property for 1996.
A planned maintenance program for the properties began in 1995 (estimated cost
of approximately $250,000 - financed through a line of credit obtained in 1995)
which is intended to provide repairs and refurbishments needed to improve guest
facilities and appearance of the properties to assure guest satisfaction.
PAGE 8
9
On February 16, 1993, the Board of Directors of Super 8 Motels, Inc., the
Partnership's franchiser, announced an agreement to sell the company to
Hospitality Franchise Systems, Inc. The transaction closed shortly thereafter.
Hospitality Franchise Systems, Inc., the world's largest franchiser of hotel
rooms, is a publicly held company whose stock is traded on the New York Stock
Exchange under the symbol "HFS." The company has more than 4,400 franchised
Super 8 Motels, Days Inn, Howard Johnson, Ramada and other motel brands with
over 300,000 rooms in the United States, Canada, Mexico, India, and Europe.
HFS operates its franchise business in a manner that respects the separate
identity of each brand. They maintain separate marketing campaigns, additional
general franchise services, and separate reservation systems and "800" numbers.
Having over 4,200 properties worldwide, HFS provides enormous opportunities in
marketing, purchasing, and technology. This transaction will now make available
to Super 8 franchisees HFS's operational, marketing, and franchise sales
experience.
Nationwide the Super 8 motel chain continues to grow, increasing the name
familiarity of the chain.
Number of Super 8 Motels Increase
------------------------ --------
As of December 31, 1995 1,400 180
1994 1,220 159
1993 1,060 119
1992 941 78
1991 863 78
The Super 8 "Superline" national reservation system and "VIP Club"
(approximately 3,000,000 members) continue to be improved.
Distributions paid to the partners in 1995 aggregated $1,174,026, which equaled
a per-unit amount necessary to pay to the limited partners a 10% cumulative
return on their investment from the final closing of the offering of units on
May 5, 1984. Subsequently, on January 31, 1996, the limited partners were paid
amounts, which varied by partner, necessary to pay that partner a 10% return on
their investment from the date of their investment (or, if later, the initial
breaking of the escrow established in connection with the offering on January
12, 1983) until the closing of the offering on May 5, 1984.
Prior to 1985, the Partnership had been accruing, as an expense and as a
liability, the Motels' property management fees. Even though the obligation to
pay those fees exists, the terms of the partnership agreement of the Partnership
did not allow them to be paid until such time as the limited partners have
received a cumulative annual 10% return on their adjusted capital investment. In
previous filings with the United States Securities and Exchange Commission (the
"SEC"), and in the Partnership's prior years' financial statements, the
Partnership's accounting policy regarding these fees was to expense them when
paid (instead of when earned) and to not accrue unpaid property management fees
as a liability on the face of the balance sheet.
PAGE 9
10
In 1994, the Partnership changed its accounting policy for property management
fees to reflect, on the Partnership's income statement, the expense when the
obligation to pay the fee was incurred and to accrue the corresponding liability
on the face of the Partnership's balance sheet. Thus, the financial information
contained in this report conforms with that reporting position. Previously,
incurred but unpaid management fees totaled $1,367,000 on December 31, 1995.
Subsequently, the Partnership paid, in February 1996, the management fees
accrued and unpaid during 1995 of $168,112. Attention is directed to Note 7 in
the "Financial Statements," for a discussion of property management fees.
Additionally, see the discussion in Part II, Item 6, "Selected Financial Data"
of this report.
ITEM 8.
Financial Statements
See Independent Auditor's Report and Financial Statements, pages 2 through 15,
for financial statements incorporated by reference; and Item 14 for a list of
the Financial Statement Schedules filed as a part of this report.
ITEM 9.
Disagreements on Accounting and Financial Disclosure
None.
PAGE 10
11
PART III
ITEM 10.
Directors and Executive Officers of the Registrant
The General Partners of the Partnership are The Peninsula Group Incorporated and
Gerald L. Whitcomb.
Gerald L. Whitcomb, age 52, was educated at the University of Nebraska with
majors in economics and business finance and obtained a JD. in Law. He practiced
law in Shelton, Washington from 1969 to 1979. Since 1979, he has been involved
in the management of The Peninsula Group, Inc., (formerly known as Super 8
Motels Northwest, Inc.) and its affiliates.
Mr. Whitcomb is the principal organizer and stockholder of The Peninsula Group
Incorporated and its subsidiaries, one of which was the General Partner of
Shelton Super 8 Motel Associates. Mr. Whitcomb is the general partner of Super 8
Motels Northwest I, a limited partnership whose limited partnership units were
registered under the Securities Act of 1933. He is also a partner in Super 8
Motel Developers, which is General Partner of Super 8 Motels of Lacey
Associates, the General Partner of Super 8 Motels Northwest I, Juneau Motel
Associates, Anchorage Motel Associates and Peninsula Motel Associates, all
Washington limited partnerships. Mr. Whitcomb is the Managing Partner of Tongass
Motel Associates, an Alaska general partnership, Mr. Whitcomb is partner in
Peninsula Properties Partnership, a Washington partnership.
The Peninsula Group Incorporated is a privately owned Washington corporation. It
owns franchise rights for Super 8 Motels in Washington, Oregon and selected
sites in Alaska.
The officers and directors of The Peninsula Group Incorporated are as follows:
Age Office
Term of Office
Gerald L. Whitcomb 52 President, Chairman & One Year
Treasurer
Maryanne Whitcomb 48 Executive Vice President & One Year
Secretary
Lawrence Knudsen 55 Executive Vice President One Year
H. Samual Polack 55 Executive Vice President One Year
Mark P. Munson 39 Executive Vice President One Year
Cortnae del Valle 24 Director One Year
Kelly M. Ervin 22 Director One Year
Due to a change in management of the Partnership's General Partner's offices
where the individual responsible for ensuring that appropriate filings are made
with the SEC, some recently required filings on Forms 3, 4 or 5 appear not to
have been timely made. The Partnership is working closely with its counsel to
promptly rectify any such delinquent filings.
PAGE 11
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ITEM 11.
Executive Compensation
The General Partners received no salary or bonus compensation from the
Partnership during fiscal year ended December 31, 1995. See Item 13.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
Title Name Percent
General Partner Gerald L. Whitcomb .1
The Peninsula Group, Inc. .9
Limited Partners Various 99.0
100.0
Gerald L. Whitcomb and Maryanne Whitcomb are the beneficial owners of all of the
stock of The Peninsula Group Incorporated and also own four Units individually
and four units in trust for their children in addition to his General Partner
interest. Kelly Ervin owns two Units individually.
See Note 3 of Notes to the "Financial Statements" for a discussion of
distributions and allocations of profits and losses.
ITEM 13.
Certain Relationships and Related Transactions
See Notes 6 and 7 of Notes to "Financial Statements." A portion of Note 6
relating to property management fees follows:
"The partnership has a management agreement with an affiliate of the general
partner to employ the affiliate for a period of 20 years a manager of the motels
owned by the partnership. The agreement provides for payment of a property
management fee to the affiliate equal to 5% of the partnership's gross revenues
from motel operations in addition to reimbursement of certain out-of-pocket cost
incurred by the affiliate in connection with the management of the property. The
5% base fees are property management fees. The reimbursement of out-of-pocket
costs as administrative service fees."
PAGE 12
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PART IV
ITEM 14.
Exhibits Financial Statement Schedules, and Report an form 8-K
Exhibits incorporated by reference
1.1 Wholesaler's Agreement
1.2 Selected Dealer's Agreement
4.1 Subscription Agreement (filed as Exhibit "B" to the prospectus).
4.2 Limited Partnership Agreement (filed as Exhibit "A" to the Prospectus).
5.1 Opinion of counsel to the Partnership on the legality of Units being issued.
8.1 Tax Opinion - set forth in full in the Amended Prospectus.
10.1 Territorial Agreement
10.2(a) State of Washington Franchise Agreement
10.2(b) State of Oregon Franchise Agreement
10.3 Management Agreement
10.4 Ground Sublease and amendment thereto for Bremerton site.
10.5 Option to Purchase Portland site.
10.6 Option to Lease Union Gap (Yakima) site.
16.1 Consent to use of Accountant's name in Registration Statement.
16.2 Letter re change in certifying accountant.
Exhibits filed herewith.
Financial Statements of the Registrant for the year ended December 31, 1995.
Financial Statements and supplemental schedules include:
Report of Independent Public Accountants
Balance Sheet
Statement of Income
Statement of Changes in Partners' Equity
Statement of Changes in Financial Position
Notes to Financial Statements
January, 1996 Partnership newsletter mailed to limited partners.
There were no
reports on form 8-K during 1995.
Financial Data Schedule for the year ended December 31, 1995
PAGE 13
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SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its'
behalf by the undersigned thereunto duly authorized:
Gerald L. Whitcomb 3/28/96
- - -----------------------------------------------
GERALD L. WHITCOMB
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons below on behalf of the registrant and in
the capacities and on the dates indicated.
Gerald L. Whitcomb 3/28/96
- - -----------------------------------------------
GERALD L. WHITCOMB, Chairman,
Chief Executive Officer, Treasurer and Director
The Peninsula Group Incorporated
Maryanne Whitcomb 3/28/96
- - -----------------------------------------------
MARYANNE WHITCOMB,
Executive Vice President, Secretary
The Peninsula Group Incorporated
Mark P. Munson 3/28/96
- - -----------------------------------------------
MARK P. MUNSON, Executive Vice President
The Peninsula Group Incorporated
Lawrence P. Knudsen 3/28/96
- - -----------------------------------------------
LAWRENCE P. KNUDSEN
Executive Vice President
The Peninsula Group Incorporated
H. Samuel Polack 3/28/96
- - -----------------------------------------------
H. SAMUEL POLACK
Executive Vice President
The Peninsula Group Incorporated
PAGE 14
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SUPER 8 MOTELS NORTHWEST II
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
16
CONTENTS
-----------------------------------------------------------------------
PAGE
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2-3
Statement of income 4
Statement of changes in partners' equity 5
Statement of cash flows 6-7
Notes to financial statements 8-15
- - -------------------------------------------------------------------------------
17
INDEPENDENT AUDITOR'S REPORT
To the General and Limited Partners
Super 8 Motels Northwest II
We have audited the accompanying balance sheets of Super 8 Motels Northwest II
as of December 31, 1995 and 1994, and the related statements of income, changes
in partners' equity, and cash flows for the three years ended December 31, 1995,
1994, and 1993. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels Northwest II as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the three years ended December 31, 1995, 1994, and 1993, in conformity
with generally accepted accounting principles.
As described in Note 7, the accompanying financial statements for the year ended
December 31, 1993, have been restated to reflect the accrual of property
management fees.
MOSS ADAMS LLP
Tacoma, Washington
February 2, 1996
- 1 -
18
SUPER 8 MOTELS NORTHWEST II
BALANCE SHEET -----------------------------------------------------------------
ASSETS
DECEMBER 31,
----------------------------
1995 1994
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 733,916 $ 822,944
Accounts receivable - trade 76,718 26,590
Accounts receivable - affiliates 2,089 20,480
Inventory 57,853 70,902
Prepaid expenses 15,000 33,583
----------- -----------
Total current assets 885,576 974,499
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land 714,301 714,301
Buildings 4,097,107 4,097,106
Equipment, furniture and fixtures 1,239,937 1,239,937
----------- -----------
6,051,345 6,051,344
Less accumulated depreciation (2,581,127) (2,406,444)
----------- -----------
3,470,218 3,644,900
----------- -----------
OTHER ASSETS
Franchise fees 45,000 45,000
Lease option costs 6,000 6,000
Deposits and bank fees 26,375 23,875
----------- -----------
77,375 74,875
Less accumulated amortization (41,376) (36,538)
----------- -----------
Total other assets 35,999 38,337
----------- -----------
$ 4,391,793 $ 4,657,736
=========== ===========
The accompanying notes are an integral
part of these financial statements.
- 2 -
- - -------------------------------------------------------------------------------
19
SUPER 8 MOTELS NORTHWEST II
- - ----------------------------------------------------------------- BALANCE SHEET
LIABILITIES AND PARTNERS' EQUITY
DECEMBER 31,
----------------------------
1995 1994
---------- ----------
CURRENT LIABILITIES
Accounts payable, trade $ 43,098 $ 25,299
Accounts payable, affiliates 43,694 76,947
Accrued expenses 115,876 106,417
Current portion of long-term debt 142,000 84,000
---------- ----------
Total current liabilities 344,668 292,663
---------- ----------
NONCURRENT LIABILITIES
Long-term debt, net of current portion
shown above 2,499,820 2,524,151
Accrued rent under lease agreements 121,038 102,787
---------- ----------
2,620,858 2,626,938
---------- ----------
ACCRUED PROPERTY MANAGEMENT FEES 1,367,160 1,199,048
---------- ----------
COMMITMENTS
PARTNERS' EQUITY
General partner deficiency (30,618) (25,819)
Limited partners (authorized and
outstanding, 4,052 units) 89,725 564,906
---------- ----------
59,107 539,087
---------- ----------
$4,391,793 $4,657,736
========== ==========
The accompanying notes are an integral
part of these financial statements.
- 3 -
- - -------------------------------------------------------------------------------
20
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF INCOME -----------------------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------------------------
1995 1994 1993
---------- ---------- ----------
SALES
Rooms $3,277,174 $3,236,567 $2,873,450
Other 85,069 99,146 65,055
---------- ---------- ----------
3,362,243 3,335,713 2,938,505
---------- ---------- ----------
DIRECT OPERATING EXPENSES
Payroll and related expenses 654,913 648,586 626,880
Maintenance, repairs, and
supplies 292,489 242,450 351,204
Utilities 187,831 172,591 172,792
Other 33,800 36,159 22,238
---------- ---------- ----------
1,169,033 1,099,786 1,173,114
---------- ---------- ----------
INDIRECT OPERATING EXPENSES
Taxes (principally property
taxes) and fees 144,931 149,445 132,422
Advertising and promotion 125,870 124,255 113,143
Bank and credit card charges 47,000 45,686 40,630
Insurance 38,604 48,705 36,411
Other 23,904 11,193 19,824
---------- ---------- ----------
380,309 379,284 342,430
---------- ---------- ----------
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative service fees 182,277 175,852 168,023
Property management fees 168,112 166,786 146,925
Franchise fees 131,938 129,176 115,700
Professional services 36,956 33,035 29,499
Other 24,693 20,521 19,612
---------- ---------- ----------
543,976 525,370 479,759
---------- ---------- ----------
FIXED CHARGES
Interest expense 246,505 222,255 219,340
Depreciation 174,683 187,263 194,845
Lease expense - current 137,591 133,590 129,672
Lease expense - deferred 18,251 20,030 21,726
Amortization 4,838 4,837 4,838
---------- ---------- ----------
581,868 567,975 570,421
---------- ---------- ----------
INCOME FROM OPERATIONS 687,057 763,298 372,781
OTHER INCOME (EXPENSE) 18,847 8,375 (4,457)
---------- ---------- ----------
NET INCOME $ 705,904 $ 771,673 $ 368,324
========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 172.47 $ 188.54 $ 89.99
========== ========== ==========
The accompanying notes are an integral
part of these financial statements.
- 4 -
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21
SUPER 8 MOTELS NORTHWEST II
- - -------------------------------------- STATEMENT OF CHANGES IN PARTNERS' EQUITY
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
BALANCE, December 31, 1992,
as restated $(23,916) $ 753,208 $ 729,292
Distributions paid (5,628) (557,150) (562,778)
Net income, as restated 3,683 364,641 368,324
-------- ----------- -----------
BALANCE, December 31, 1993,
as restated (25,861) 560,699 534,838
Distributions paid (7,674) (759,750) (767,424)
Net income 7,716 763,957 771,673
-------- ----------- -----------
BALANCE, December 31, 1994 (25,819) 564,906 539,087
Distributions paid (11,858) (1,174,026) (1,185,884)
Net income 7,059 698,845 705,904
-------- ----------- -----------
BALANCE, December 31, 1995 $(30,618) $ 89,725 $ 59,107
======== =========== ===========
The accompanying notes are an integral
part of these financial statements.
- 5 -
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22
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF CASH FLOWS -------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Revenues and other income
received in cash $ 3,349,353 $ 3,325,707 $ 2,945,155
Operating expenses paid in cash (2,039,115) (1,902,453) (1,997,521)
Interest paid (244,550) (222,255) (220,482)
----------- ----------- -----------
Net cash provided by
operating activities 1,065,688 1,200,999 727,152
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and
equipment, net -- (9,214) (26,024)
Proceeds from disposals of property
and equipment -- -- 5,000
----------- ----------- -----------
Net cash used by
investing activities -- (9,214) (21,024)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Loan proceeds 129,580 -- --
Principal payments on debt (95,912) (85,357) (81,195)
Loan fees paid (2,500) -- --
Distributions to:
Limited partners (1,174,026) (759,750) (557,150)
General partner (11,858) (7,674) (5,628)
----------- ----------- -----------
Net cash used by
financing activities (1,154,716) (852,781) (643,973)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (89,028) 339,004 62,155
CASH AND CASH EQUIVALENTS,
beginning of year 822,944 483,940 421,785
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 733,916 $ 822,944 $ 483,940
=========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
- 6 -
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23
SUPER 8 MOTELS NORTHWEST II
- - ------------------------------------------------------ STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------
1995 1994 1993
---------------- ---------------- ------------------
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net income $ 705,904 $ 771,673 $ 368,324
---------------- ---------------- ------------------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 179,521 192,100 199,683
Lease expense - deferred 18,251 20,030 21,726
Loss on sale of property
and equipment -- -- 5,325
Change in assets and liabilities
Accounts receivable (31,737) (18,381) 5,782
Inventory 13,049 7,670 4,706
Prepaid expenses 18,583 1,273 1,860
Deposits and bank fees -- 251 --
Accounts payable (15,454) 47,368 (31,633)
Accrued expenses 9,459 12,229 4,454
Accrued management fees 168,112 166,786 146,925
---------------- ---------------- ------------------
359,784 429,326 358,828
---------------- ---------------- ------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 1,065,688 $ 1,200,999 $ 727,152
================ ================ ==================
The accompanying notes are an integral
part of these financial statements.
- 7 -
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24
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993 ---------------------------------------------
NOTE 1 - PARTNERSHIP OPERATIONS
Description of Business - Super 8 Motels Northwest II is a
Washington Limited Partnership. The Partnership owns and operates three motels:
one in Bremerton, Washington, which opened in November 1983; one in Portland,
Oregon, which opened in May 1984; and one in Yakima, Washington, which opened in
September 1984.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents - Cash equivalents are investments with maturity
at date of purchase of three months or less.
(b) Inventory - Inventory consists of various operating supplies which
have been valued at cost.
(c) Property, Equipment, and Depreciation - Property and equipment are
stated at cost and are depreciated using straight-line and accelerated methods
over estimated useful lives as follows:
Years
-----
Buildings and improvements 7, 15 and 30
Equipment, furniture, and fixtures 5 and 7
(d) Franchise Fees and Lease Option Costs - Initial franchise fees and
lease options costs are stated at cost; amortization of these amounts is being
provided using the straight-line method over 20 and 30 years, respectively.
(e) Bank Fees - Bank fees are stated at cost; amortization of these
amounts is provided using the straight-line method over the term of the loan (5
to 10 years).
(f) Income Taxes - No provision has been made in the accompanying
financial statements for federal or state income taxes as taxable income or loss
of the partnership is allocated to and included in the taxable income of the
partners. See Note 5 for additional discussion.
- 8 -
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25
SUPER 8 NORTHWEST MOTELS II
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------- DECEMBER 31, 1995, 1994, AND 1993
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Income per Limited Partnership Unit - Net income per limited
partnership unit was computed by dividi g the limited partners' share of net
income by the limited partners' units outstanding for each year.
(h) Accrued Vacation - It is the partnership's policy to expense
vacation pay as paid rather than as earned as required by generally accepted
accounting principles. The effect upon the financial statements is not
significant.
(i) Reclassification - Certain reclassifications have been made to the
1993 statement of income for comparative purposes.
(j) Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amoun s reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
(k) Concentration of Credit Risk - The partnership has bank deposits in
excess of Federal Deposit Insurance limits. The partnership's management does
not anticipate any adverse effect on its financial position resulting from the
credit risk.
NOTE 3 - DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
Distributions - Under the partnership agreement, on a
quarterly basis, the general partner determines the amount, if any, of cash
available for distribution and distributes cash as follows:
- 1% to the general partner and 99% to the limited partners
until the limited partners have received a cumulative pretax
return on their adjusted capital investment of 10% per year
through the end of the partnership year for which the
distribution is being made, then
- Payment of the unpaid balance of property management fees (see
Note 6), then
- Any remaining cash will be allocated 15% to the general
partner and 85% to the limited partners.
- 9 -
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26
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993 ---------------------------------------------
NOTE 3 - DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES (CONTINUED)
Distributions paid to the partners in 1995 aggregated
$1,174,026, which equaled a per-unit amount necessary to pay to the limited
partners a 10% cumulative return on their investment from the final closing of
the offering of units on May 5, 1984. Subsequently, on January 31, 1996, the
limited partners were paid amounts, which varied by partner, necessary to pay
that partner a 10% return on their investment from the date of their investment
(or, if later, the initial breaking of the escrow established in connection with
the offering on January 12, 1983) until the closing of the offering on May 5,
1985.
Profit and Losses - Profits and losses are allocated 1% to the
general partner and 99% to the limited partners until the limited partners have
received a cumulative pretax return of 10% per year on their adjusted capital
investment; and thereafter, 15% to the general partner and 85% to the limited
partners.
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994, consisted of the
following:
1995 1994
----------------- -------------------
Mortgage loan payable to bank, collateralized
by property and assignment of land lease;
interest rate is variable and is adjusted
annually based on a treasury bill index plus
3.5% (interest rate is 9% at December
31, 1995) payable in variable monthly
installments including interest through
August 2009. Current payment amount is
$18,803. $ 1,776,274 $ 1,838,962
Mortgage loan payable to bank, collateralized
by property and assignment of land lease;
interest rate was 10.25% until December
1, 1995; rate is adjusted annually
thereafter, based upon a treasury bill index
plus 2.5%. Payable in monthly installments
of $8,308. Balance is due February 2001. 748,467 769,189
-10-
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27
SUPER 8 NORTHWEST MOTELS II
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------- DECEMBER 31, 1995, 1994, AND 1993
NOTE 4 - LONG-TERM DEBT (CONTINUED)
1995 1994
----------------- -------------------
Line of credit totaling $250,000, collateralized
by real property; interest rate is variable at
1% plus lender's prime rate, payable in
variable monthly installments of $4,167
plus interest, maturing January 2000. 117,079 --
----------------- -------------------
2,641,820 2,608,151
Less current portion 142,000 84,000
----------------- -------------------
$ 2,499,820 $ 2,524,151
================= ===================
Based upon the December 31, 1995, interest rate for the
mortgage loans, principal payments required on these notes during each of the
next five years and thereafter are as follows:
1996 $ 142,000
1997 150,000
1998 127,000
1999 121,000
2000 133,000
Thereafter 1,968,820
----------------
$ 2,641,820
================
NOTE 5 - INCOME TAXES
The cost of certain assets and the amount of certain expenses
reported for federal income tax purposes are different from the amounts reported
under generally accepted accounting principles in the accompanying financial
statements. The differences arise primarily from:
(a) Depreciating the building for financial reporting purposes using
the straight-line method over a 30 year life, and for federal income tax
purposes using the straight-line method over a 15 or 18 year life.
-11-
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28
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993 ---------------------------------------------
NOTE 5 - INCOME TAXES (CONTINUED)
(b) Depreciating furniture and equipment for finan ial reporting
purposes using the straight-line method over a five year life, and for federal
income tax purposes using the accelerated cost recovery method or the modified
accelerated cost recovery method over a five or a seven year life.
(c) Deducting sales tax incurred prior to 1987 on property and
equipment acquisitions as an expense for fe eral income tax purposes and
capitalizing it for financial reporting purposes.
(d) Amortizing capitalized interest for federal income tax purposes
using a ten year life and for financial reporting purposes amortizing it over
the life of the building.
Following is a reconciliation of net income for financial
reporting purposes to net income for federal income tax reporting purposes for
the years ended December 31, 1995, 1994, and 1993:
1995 1994 1993
------------- ------------- -------------
Net income as shown in
statement of income $ 705,904 $ 771,673 $ 368,324
Additional depreciation and
amortization for income tax purposes (41,488) (41,722) (72,406)
Accrued property management fees 168,112 166,786 146,925
Lease expense - deferred 18,251 20,030 21,726
Other 7,569 96 6,498
------------- ------------- --------------
Net income for federal income
tax reporting purposes $ 858,348 $ 916,863 $ 471,067
============= ============= ==============
NOTE 6 - RELATED-PARTY TRANSACTIONS
Transactions between the partnership and the general partners,
The Peninsula Group, Inc. (formerly named Super 8 Motels Northwest, Inc.) and
Gerald L. Whitcomb and between the partnership and affiliates of the general
partner are as follows:
1995 1994 1993
------------------ ----------------- -----------------
Purchases of supplies and
equipment $ 266,673 $ 214,823 $ 322,475
Administrative service fees $ 182,277 $ 175,852 $ 168,023
-12-
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29
SUPER 8 NORTHWEST MOTELS II
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------- DECEMBER 31, 1995, 1994, AND 1993
NOTE 6 - RELATED-PARTY TRANSACTIONS (CONTINUED)
The partnership has a management agreement with an affiliate
of the general partner to employ the affiliate for a period of 20 years as
manager of the motels owned by the partnership. The agreement provides for
payment of a property management fee to the affiliate equal to 5% of the
partnership's gross revenues from motel operations in addition to reimbursement
of certain out-of-pocket cost incurred by the affiliate in connection with
management of the property. The 5% base fees are property management fees. The
reimbursements of out-of-pocket costs are recorded as administrative service
fees.
Payment of property management fees is subordinated to receipt
by the limited partners of a cumulative, pretax return on their adjusted capital
investment of 10% per annum. The amount of such fees that would have been paid
for services performed through December 31, 1995, had the return to the limited
partners stipulated above been met, is $1,367,160. Due to the uncertainty of
payment, property management fees had not been accrued prior to 1994. In 1994
this management fee was accrued with restatement of prior years' information.
See Note 7 for further discussion.
NOTE 7 - PRIOR-PERIOD ADJUSTMENT
As discussed in the last paragraph of Note 6, management did
not previously accrue unpaid property management fees because management then
believed that such fees were not probable of payment. In 1994 the partnership
adopted the accrual method of accounting for unpaid property management fees.
Accordingly, the accompanying December 31, 1993, financial statements were
restated.
A summary of the effect of this restatement on the 1993
financial statements is as follows:
Increase in long-term liabilities $ 1,032,262
Decrease in partners' equity $ 1,032,262
Decrease in net income $ 146,925
- 13 -
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30
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993 ---------------------------------------------
NOTE 8 - COMMITMENTS
(a) Lease Commitments - The partnership leases the land upon which the
Bremerton and Yakima motels are located under three operating leases with
initial lease terms of 36, 30, and 24 years.
The Bremerton and one of the Yakima land leases provide for
adjustment of the minimum rent ranging from one to three years by a factor based
on changes in the consumer price index.
The remaining Yakima land lease provides for adjustment of the
minimum rent annually by a factor of 5%. This lease requires fixed minimum
payment escalations over the lease term. Generally accepted accounting
principles require the partnership to recognize lease expense on a straight-line
basis over the term of each lease. As a result, lease expense is presently
greater than cash lease payments. Cash lease payments are captioned "lease
expense--current" in the statement of operations. Noncash lease expense is
captioned "lease expense--deferred" in the statement of operations. In the
balance sheet under noncurrent liabilities, "accrued rent under lease
agreements" reflects the accrual of noncash lease expense. This accrued rent
will not begin to be paid until 2004.
Minimum lease payments based on current rents are as follows:
1996 $ 137,094
1997 139,056
1998 141,116
1999 143,280
2000 145,551
Thereafter 2,473,198
----------------
$ 3,179,295
================
(b) Franchise Agreement - The partnership has purchased franchise
rights to provi e motel services to the general public using a system commonly
known as Super 8 Motels. An initial franchise fee of $15,000 was paid for each
motel and the partnership is committed to pay additional fees equal to 4% of
gross room revenue for the 20 year term of the agreement. The franchise
agreement with Super 8 Motels, Inc. to pay 1% of gross room revenue to the
national advertising fund was terminated December 31, 1995.
- 14 -
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31
SUPER 8 NORTHWEST MOTELS II
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------- DECEMBER 31, 1995, 1994, AND 1993
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents - The carrying amount approximates
fair value because of the short-term maturity of those instruments.
Long-Term Debt - The carrying amounts of the partnership's
borrowings under its long-term revolving credit agreement and mortgage loans
payable approximate fair value.
- 15 -
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