1
FORM 10-Q
SECURITIES 7 EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Period Ended: September 30, 1996
Commission File Number: 2-76543
SUPER 8 MOTELS NORTHWEST II
Washington 91-1172558
PART 1
Financial Information
Item 1. Financial Statements
See attached unaudited September 30, 1996 Financial Statements and the
partnership's balance sheet for the year ended December 31, 1995. The Statement
of Cash Flows is omitted from the attachment and is presented as follows:
PERIOD ENDED SEPTEMBER 30,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues and other income received in cash $ 2,870,996 $ 2,643,102
Operating expenses paid in cash (2,237,713) (1,521,065)
Interest paid (183,982) (183,208)
----------- -----------
Net cash provided by operating activities 449,301 938,829
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (20,550) (26,740)
----------- -----------
Net cash used by investing
activities (20,550) (26,740)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (104,655) (61,080)
Distributions to partners (553,889) (818,586)
----------- -----------
Net cash used by financing activities (658,544) (879,666)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(229,793) 32,423
CASH AND CASH EQUIVALENTS, beginning of period 733,916 822,944
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 504,123 $ 855,367
=========== ===========
2
PERIOD ENDED SEPTEMBER 30,
1996 1995
--------- ---------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net income $ 933,669 $ 607,205
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 131,449 134,817
Lease expense - deferred 12,100 13,688
Loss (gain) on sale of property and equipment 5,864 (1,521)
Change in assets and liabilities
Accounts receivable (2,324) 6,032
Inventory -- 10,678
Prepaid expenses (13,931) 13,106
Deposits and bank fees -- 23,875
Accounts payable 24,532 (27,357)
Accrued expenses 26,054 26,608
Accrued management fees (668,112) 131,698
--------- ---------
(484,368) 331,624
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES
$ 449,301 $ 938,829
========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
See attached Third Quarter (9/30/96) Update from the Issuer delivered to its
limited partners.
PART 2
Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
None.
3
SIGNATURES
Pursuant to the requirements 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.
SUPER 8 MOTELS NORTHWEST II
a Washington limited partnership
By:__________________________________________
Gerald L. Whitcomb, General Partner
Dated: November 14, 1996
4
VOL. 16 NO. 3/OCTOBER 31, 1996 THIRD QUARTER 1996
UPDATE
SUPER 8 MOTELS NORTHWEST II
NATIONAL & REGIONAL NEWS
V.I.P. CLUB HITS 4 MILLION MARK
Super 8's frequent traveler program, the V.I.P. Club, has reached an all-time
high of 4 million members. It is now the largest frequent traveler program in
the entire economy lodging market. Super 8 Motels President Bob Weller recently
reported, "Our V.I.P. Club is one of the strongest marketing tools in the
industry. More than 50% of all reservations made through Superline are made with
the V.I.P. Card, and club members account for more than 50% of room nights
booked through Superline."
Super 8's V.I.P. Club began in 1976 with the intent of building a guest program
that offered discounts to the frequent traveler, thus ensuring their return. By
1986, membership increased to just over 200,000. The club reached one million
members in 1990, two million in 1992, and 4 million in September of this year.
Peninsula Management Northwest is marking the achievement of this important
milestone with a continued emphasis on the importance of V.I.P. guests.
Management and front desk training programs currently being utilized
significantly highlight V.I.P. sales-and incentive programs reward staff
quarterly for their efforts. As a consistent leader nationally, Peninsula
Management now receives an even greater percentage of its business from the
V.I.P. cardholder than the 53% national figure noted above.
FALL MARKS NATIONAL HOUSEKEEPER AND CUSTOMER SERVICE WEEKS
National Housekeeper Week, September 8-14, was celebrated for the first year
within Peninsula properties with special recognition and expressions of
appreciation. Each of the 142,000 clean and comfortable guest rooms rented this
summer was made so by one of the 260 housekeepers, laundry workers, and housemen
working on behalf of Peninsula Management. Also of importance was the ongoing
maintenance work accomplished by this same staff during the busy third quarter
season.
National Customer Service Week, October 6-12, is being celebrated at Super 8
headquarters with a departmental open house and posters promoting awareness. In
the Northwest Region, CUSTOMER SERVICE constituted the primary theme at the
individual motel Employee Appreciation Meetings, during which time regular
guests were thanked and exceptional guest service providers on staff were
honored.
NASCAR SPONSORSHIP HEATS UP
New print advertisements featuring Winston Cup Champion Bill Elliott premiered
August 26 in USA Today. In the ad, Elliott commends Super 8 Motels' consistent
quality, service and value. "If Super 8 were a race car driver, I'd be looking
over my shoulder all the time," Elliott states.
Driver Bill Elliott is a NASCAR legend with 40 career victories to his name. He
has been voted Most Popular Driver of the Year by NASCAR fans ten times, most
recently in 1995. Tom McNulty, national Marketing Director, in reporting to the
Franchise Advisory Board, stated, "With Bill Elliott, we're
5
working with one of NASCAR's premier drivers. He and his car are actively
followed by motor sports fans, and we are thrilled to be associated with him."
NATIONAL QUALITY ASSURANCE ANNOUNCES MORE TERMINATIONS
Continuing to take a tough stand on properties with multiple Quality Assurance
failures, Super 8 Motels, Inc. has terminated franchises in three more
locations. The Quality Assurance Department works diligently to analyze
properties with deficiencies, and strives to help owners and managers improve
overall scores in order to maintain the outstanding quality and service of the
chain.
NORTHWEST DEVELOPMENT AND CONSTRUCTION NOTES
The 78-room Ferndale, Washington, Super 8 Motel opened as scheduled on October
18. A Ribbon Cutting and Grand Open House was well attended that afternoon by
city and county officials, business leaders and Chamber of Commerce members from
numerous neighboring feeder cities. This property is notable as the first Super
8 to be located north of Seattle on the 1-5 corridor, and, as such, is viewed as
a visible link to the important Canadian market.
The construction start in Woodburn, Oregon, mentioned in the second quarter
Update, experienced delays this summer due to development fee escalation. After
months of fee negotiations, a new schedule begins construction December 1, 1996,
and opening is anticipated just in time to benefit from the 1997 summer travel
season.
Additional site acquisitions have been made in Oregon. The first of these is
located in Redmond, 16 miles north of the existing Bend Super 8 Motel. This
development is moving rapidly, with opening slated for May, 1997. The second
Oregon site is in Roseburg on a newly constructed 1-5 freeway interchange at the
northerly end of the city limits. Both of these properties will feature all the
traditional Super 8 Northwest amenities, and will have the capability of
handling continental breakfast should future market conditions demand that
service.
SUPER 8 MOTELS NORTHWEST II
The partnership ended the third quarter with an increase in sales over the same
period 1995. However, the sales growth was not across the board. The increase in
sales due to the Navy contract in Bremerton was partially offset by a slow third
quarter at Yakima. Portland was running at better than 87% for the same quarter
during 1995-thus leaving little room for revenue growth.
In Bremerton, the Navy contract officially ended during the last week in
September. While the average daily room rate was down by about $5.00 per rented
room, the property rented 2,500 more rooms than in the third quarter of 1995,
resulting in increased sales of more than $85,000 for the quarter. This Navy
contract was a good one for the property and everyone is working very hard to
secure another when the next ship comes in for renovation. In the meantime,
occupancy at Bremerton for October remains quite good.
Yakima continued to suffer occupancy declines as experienced throughout the
year. This property has been very strong for a long time and we expect it to
remain relatively so in the future. Currently however, the tracking agencies
report overall decline in occupancy in the area due to a variety of factors. Our
6
decline has been tracked to fewer sports tournaments and special events, as well
as additional properties entering the overall market.
Portland remains the strongest property in the partnership. Occupancy for the
quarter grew by three percentage points over 1995, with marginal room rate
growth. New rooms continue to be added to the area and maintaining market share
becomes tougher and tougher, but Portland should finish the year above 1995. For
more specifics regarding occupancy and room rates, please refer to the enclosed
charts.
The enclosed consolidated unaudited financial statements of the partnership
through September30, l996, show an increase in Sales of $240,000, or 9%, for the
year compared to 1995. However, Net Income increased by over $326,000, or 54%,
over the same period in 1995. About $120,000 of the 1996 increase in Net Income
is because there were major expenditures in upgrading and renovating the
properties in 1995. The balance of the increase is due to economies of scale
which occur when a property runs high occupancies as did Bremerton during the
first nine months of the year.
Over the winter there will be significant rehabs done to the properties-starting
with electronic locks being installed in all three properties. In addition, a
significant number of rooms will be refurbished. As spring arrives, we will be
doing some facelifts to the exteriors of the buildings to provide better curb
appeal with a more up-to-date look.
Third quarter distribution is in the amount of $25.00 per partnership unit. This
equals a 10% per annum return on your original investment.
Year-end tax audits and partnership tax information will be prepared by the
certified public accounting firm of Moss Adams. Tax information will be
forwarded to you on or before February 28,1997. Please advise us of any change
of address information by January 1, 1997, so that we can get this information
to you in a timely manner.
Thank you for your continued support of Super 8 Motels Northwest 1. We hope you
have a joyous holiday season. If you plan to travel, call 1-800-800-8000 to
reserve your room at Super 8 Motels anywhere in the United States and Canada.
7
SUPER 8 MOTELS NORTHWEST II
BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
(Unaudited)
ASSETS
1996 1995
---------------- ----------------
CURRENT ASSETS
Cash $ 504,123 $ 855,367
Accounts receivable 81,131 41,038
Inventory 57,853 60,224
Prepaid expenses 28,931 20,477
---------- -----------
Total current assets 672,038 977,105
PROPERTY AND EQUIPMENT
Land 714,301 714,301
Buildings 4,097,106 4,123,482
Equipment, furniture, and fixtures 1,241,326 1,240,302
----------- -----------
Subtotal 6,052,734 6,078,085
Less accumulated depreciation (2,695,802) (2,537,632)
----------- -----------
Total property and equipment, net 3,356,932 3,540,453
OTHER ASSETS
Franchise fees 45,000 45,000
Organization costs 6,000 6,000
Deposits and bank fees 26,375 0
----------- -----------
Subtotal 77,375 51,001
Less accumulated amortization (44,854) (40,167)
Subtotal 32,521 10,834
Total other assets 32,521 10,833
---------- ----------
Total assets $4,061,492 $4,528,391
========== ==========
LIABILITIES AND PARTNER'S CAPITAL EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 66,974 $ 56,842
Accounts payable - Affiliates 44,350 18,047
Accrued expenses 141,930 133,025
Current portion of long-term debt 150,948 90,045
---------- ---------
Total current liabilities 404,202 297,959
NONCURRENT LIABILITIES
Accrued rent under lease agreement 133,138 114,955
Long-term debt, net of current
portion shown above 2,386,217 2,457,026
Accrued property management fees 699,048 1,330,746
---------- ----------
Total noncurrent liabilities 3,218,403 3,902,726
PARTNER'S CAPITAL EQUITY
General partners (60,189) (27,933)
Limited partners 499,076 355,639
---------- ----------
Total partner's capital equity 438,887 327,706
---------- ----------
Total liabilities and
partners' capital equity $4,061,492 $4,528,391
========== ==========
8
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---------- -----------
SALES
Rooms $2,785,281 $2,566,396
Other 81,752 60,537
---------- ----------
Total sales 2,867,033 2,626,933
DIRECT OPERATING EXPENSES
Payroll and related expenses 497,099 487,523
Supplies and maintenance 129,257 252,557
Utilities 146,918 138,102
Other 27,624 24,626
--------- ----------
Total direct operating expenses 800,897 902,808
INDIRECT OPERATING EXPENSES
Advertising and promotion 60,040 99,092
Bank and credit card charges 34,099 36,847
Insurance 27,925 29,906
Property and business taxes 110,104 113,516
Other 12,140 13,004
--------- ----------
Total indirect operating expenses 244,308 292,365
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative service fees 155,400 125,347
Franchise fees 111,073 102,673
Management fees 143,093 131,698
Professional services 30,962 22,500
Other 14,085 19,943
--------- ----------
Total administrative and
general expenses 454,613 402,161
FIXED CHARGES
Amortization 3,478 3,629
Depreciation 127,971 131,188
Interest 183,982 183,208
Lease payments 106,438 102,339
Deferred land lease 12,100 13,688
---------- ----------
Total fixed charges 433,969 434,052
---------- ----------
INCOME FROM OPERATIONS 933,247 595,547
OTHER INCOME
Gain (Loss) on sale of equipment (5,864) 1,521
Interest income 6,287 10,137
---------- ----------
Total other income 422 11,658
---------- ----------
NET INCOME (LOSS) $ 933,669 $ 607,205
========== ==========
This statement subject to change after audit to be performed by Moss Adams,
CPA's.
9
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-
10
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 aggrements 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-