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, 1996
Commission File Number 2-67456
SUPER 8 MOTELS NORTHWEST I
---------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1101310
- ---------- ----------
(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
2
definitive proxy or information statements incorporated by reference in Part
III of this Form I0-K or any amendment to this Form 10-K. (X)
There has been no market for limited partnership units since the initial
offering of limited partnership units was completed in 1982, therefore the
market value of limited partnership units is unknown.
DOCUMENTS INCORPORATED BY REFERENCE
Partnership's Audited Financial Statements.
Partnership's January, 1997 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
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PART I
ITEM 1.
Business
(a) General Development of Business
Super 8 Motels Northwest I is a Washington limited partnership (the
"Partnership") which was formed to invest in and operate two "economy" motels
located in the state of Washington (the "Motels"). The Partnership operates the
Motels as a franchise of Super 8 Motels, Inc., the national franchiser of the
"Super 8" tradename. The General Partner of the Partnership is Gerald L.
Whitcomb.
The Partnership was formed in March 1980. 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 and
Alaska.
The Partnership's total offering of $6,000,000 (6,000 Units at $1,000 each) was
fully subscribed and the offering closed in February 1982.
(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 motel 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. Both 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.
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 and a manager's apartment. No restaurants
are located on either property.
The 119-room Super 8 Motel at Sea-Tac is located near the Seattle/Tacoma
International Airport and provides additional special services to the traveling
public: long-term parking privileges, airport courtesy telephone, and free
limousine transportation to and from the airport.
Page 3
4
The 90-room Super 8 Motel at Federal Way provides a special parking area for
commercial trucks, guest laundry facilities and a travelers lounge. Adjacent to
the property are two family style restaurants owned and operated by non
affiliated companies. Both motels historically experience seasonal
fluctuations in occupancy, the low point occurring in the winter months and
peaking in late summer.
The motels provide full or part-time employment for approximately 39 people
(Sea-Tac 25, Federal Way 14).
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The Partnership operates only in one geographic area, the Puget Sound region of
Washington State. For financial information generally, see "Financial
Statements."
ITEM 2
Properties
(a) Location and General Characteristics.
The Partnership owns two parcels of real property, both purchased during the
year ended December 31, 1981. The Sea-Tac property is located at 192nd Street
at Old Highway 99 in King County, Washington. Construction commenced on the
Sea-Tac parcel in August 1981 and it opened in March 1982. The Federal Way
property is located at 348th Street and 16th Avenue in Federal Way, King
County, Washington. Construction commenced on the Federal Way property in March
1982 and was completed in September 1982.
Both motels are of frame construction with stucco exteriors, tile roofs and
have full fire alarm systems. Heating and cooling is by individual room through
the wall heat pumps.
The approximate size of the buildings is as follows:
Sea-Tac 43,850 square feet
Federal Way 37,800 square feet
Both motels underwent major renovations in 1987 at an aggregate approximate
total cost of $328,000. An approximately $1,000,000 renovation of the Sea-Tac
property commenced in February 1995, with one-half of the property closed for a
substantial period of time. The Sea-Tac renovation was completed in February,
1996. During the course of renovating the Sea-Tac property, an abandoned
residential oil tank was discovered as was other petroleum products located
underneath the building. Upon discovery of these items, the Partnership
immediately engaged an environmental consulting firm as well as legal counsel
and both the tank and the soils which were found to contain unsuitable levels
of petroleum products were removed from the site and properly disposed of.
Both motels are in operation as economy motels. For utilization of these
properties see Item 7.
See Item 1(c) for further information on each property.
ITEM 3
Page 4
5
Legal Proceeding
The Partnership is not party to any material legal proceedings.
ITEM 4
Submission of Matters to a Vote of Security Holders
None.
Page 5
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PART II
ITEM 5.
Market for the Registrant's Common Stock and
Related Security Holder Matters
The Units are owned by approximately 1,050 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 determine a fair market value for the units.
Distributions of cash to the Limited Partners made during 1996, 1995 and 1994
were $600,000 for each year.
ITEM 6.
Selected Financial Data*
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total Sales $2,975,925 $2,319,042 $2,415,274 $2,329,668 $2,493,458
Net Income (Loss)* $948,910 $132,423 $783,376 $666,072 $543,842
Net Income (Loss)* per Unit $134.43 $18.76 $110.98 $94.36 $89.63
Total Assets** $4,637,276 $4,389,769 $3,875,570 $3,895,056 $3,953,444
Long-Term Debt* $1,937,139 $1,985,797 $1,023,788 $1,224,831 $1,301,730
Cash Distribution Per Unit $100.00 $100.00 $100.00 $100.00 $240.05
*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 and 1992 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
Detailed financial data is provided in the form of audited Financial Statements
as of December 31, 1996 and 1995 and for each of the three years ended December
31, 1996, 1995 and 1994. These statements show the results of operations,
changes in partners' equity, cash flows and additional financial disclosures.
Page 6
7
ITEM 7.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
At December 31, 1996, the Partnership's current assets exceeded its current
liabilities by $414,088 which was $365,286 greater than the difference between
current assets and current liabilities on December 31, 1995. This increase is
largely attributable to strong fourth quarter occupancy figures in both Federal
Way and Sea-Tac motels. Further, as in the recent past, because the months of
January, February, and March are the slowest season of occupancy, the
Partnership must carefully manage its cash during those months.
The interest rate on the Partnership's primary mortgage was 8.5% and 7.5% in
1996 and 1995, respectively. This adjustable rate loan provides for an interest
rate adjustment each year based on an amount equal to the monthly median cost
of funds index for FSLIC insured savings and loan associations plus 3.75%, or
if less, 1% plus such amount.
The interest rate on the long term loan funding the Sea-Tac renovation is
variable, based on the lender's prime rate plus 1% per annum and is payable in
interest only payments through March 31, 1996, changing to monthly payments of
$9,768 plus interest. The bank's prime rate of interest at December 31, 1996,
is 8.25% per annum.
Balance Sheet data 1996 1995 1994
---- ---- ----
Current Assets $615,507 $296,905 $347,107
Current Liabilities $201,419 $248,103 $222,275
Current Ratio 3.06:1 1.20:1 1.56:1
At December 31, 1996, both the Sea-Tac and Federal Way properties completed
their fourteenth full years of operation.
Comparative operational statistics follow:
1996 1995 1994
---- ---- ----
Sea-Tac
Occupancy 66% 52% 60%
Rented rooms 28,696 22,411 26,083
Gross room rate* $62.46 $56.77 $54.20
Federal Way
Occupancy 70% 64% 61%
Rented rooms 22,944 21,183 20,055
Gross room rate* $46.13 $44.73 $44.07
Total
Occupancy 68% 57% 60%
Rented rooms 51,640 43,594 46,138
Gross room rate* $55.37 $50.92 $49.80
Page 7
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*"Gross Room Rate" is defined as total room revenue divided by total rooms
sold.
Total 1996 Room sales revenue increased $639,405 to $2,859,260 up from
$2,219,855 in 1995. The completion of the renovation at the Sea-Tac motel in
early February 1996 was largely responsible for the strong revenue increase.
The renovation was responsible as well for the increase in rented rooms, which
increased to 51,640 an increase of 8,046 rented rooms from the previous year
figure of 43,594. Gross room rates continued to rise from $50.92 per room in
1995 to $55.37 in 1996.
Net income in 1996 increased $816,487 to $948,910 up from $132,423 in 1995.
The increase was primarily due to the growth in Room revenue coupled with the
decrease in Direct operating expenses that reflected the majority of the
renovation costs for the Sea-Tac motel in 1995.
Direct operating expenses in 1996 decreased $273,822 to $972,971 down from
$1,246,793 in 1995. The decrease was due to the renovation costs of the
Sea-Tac motel largely being incurred in 1995. Indirect operating expenses
remained relatively flat, increasing $9,563 to $320,313 in 1996.
Increases in Property management and Franchise fees reflect the strong increase
in Room revenue and caused total Administrative and General expenses to
increase $62,054 in 1996 to $506,439.
The $44,809 increase in fixed charges resulted from increases in depreciation
and interest expense.
As discussed in Item 1, the partnership operates the motels as a franchise of
Super 8 Motels, Inc. Nationwide the Super 8 motel chain continues to grow,
increasing the name familiarity of the chain.
As of December 31, Number of Super 8 Motels Increase
------------------ ------------------------ --------
1996 1,492 92
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 4,300,000 members) continue to be improved.
Prior to 1985, the Partnership had been accruing 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
incurred) and to not accrue unpaid property management fees as a liability on
the face of the balance sheet.
Page 8
9
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.
Currently, previously incurred but unpaid management fees total approximately
$605,000. Attention is directed to Note 6 in the Partnership's 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 and Supplementary Data
See Independent Auditors Report and Financial Statements, pages 2 through 13,
for financial statements incorporated herein 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 9
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PART III
ITEM 10.
Directors and Executive Officers of the Registrant
The sole General Partner of the Partnership is Gerald L. Whitcomb.
Gerald L. Whitcomb, age 53, 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. 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 Motel of Lacey
Associates, a General Partner of Super 8 Motels Northwest II, 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 a
partner in Peninsula Properties Partnership, a Washington general partnership.
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.
ITEM 11.
Executive Compensation
The General Partner received no salary or bonus compensation from the
Partnership during fiscal year ended December 31, 1996. See Item 13.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
Title Name Percent
----- ---- -------
General Partner Gerald L. Whitcomb 1
Limited Partners Various 99
Page 10
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The General Partner, together with family members, owns twelve of the Limited
Partnership Units in addition to his General Partner Interest. 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 the Notes to the Partnership's Financial Statements.
Page 11
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PART IV
ITEM 14.
Exhibits, Financial Statement Schedules, and Reports on form 8-K
Exhibits incorporated by reference
1.2 Subscription Agreement (which is filed as Exhibit B to the
Prospectus).
3.1 Certificate and Agreement of Limited Partnership of the
Registrant (which is filed as Exhibit "A" to the Prospectus).
6.1 Opinion of Counsel to the Partnership.
Exhibits filed herewith.
Financial Statements of the Registrant for the years ended December 31, 1996,
1995 and 1994. Financial Statements and supplemental schedules include:
Report of Independent Public Accountants
Balance Sheet
Statement of Income
Statement of Changes in Partners' Equity
Statement of Cash Flows
Notes to Financial Statements
January, 1997 Partnership newsletter mailed to limited partners.
There were no reports filed on Form 8-K during 1996.
Financial Data Schedule for the year ended December 31, 1996
Page 12
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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
_____________________________________ ______________________________
GERALD L. WHITCOMB Date
General Partner
Page 13
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SUPER 8 MOTELS NORTHWEST I
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
15
CONTENTS
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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 8-13
16
INDEPENDENT AUDITOR'S REPORT
To the General and Limited Partners
Super 8 Motels Northwest I
We have audited the accompanying balance sheets of Super 8 Motels Northwest I as
of December 31, 1996 and 1995, and the related statements of income, changes in
partners' equity, and cash flows for the three years ended December 31, 1996,
1995 and 1994. 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 I as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the three years ended December 31, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles.
Tacoma, Washington
February 8, 1997
17
SUPER 8 MOTELS NORTHWEST I
BALANCE SHEET
- --------------------------------------------------------------------------------
ASSETS
DECEMBER 31,
---------------------------
1996 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 544,684 $ 222,146
Accounts receivable, trade 21,518 15,718
Accounts receivable, affiliates -- 3,442
Inventory 42,093 42,277
Prepaid expenses 7,212 13,322
---------- ----------
Total current assets 615,507 296,905
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Land 2,053,409 2,053,409
Land improvements 79,671 79,671
Buildings 2,836,155 2,818,164
Equipment, furniture and fixtures 1,021,108 1,017,991
---------- ----------
5,990,343 5,969,235
Less accumulated depreciation (2,022,417) (1,934,081)
---------- ----------
Total property and equipment 3,967,926 4,035,154
---------- ----------
OTHER ASSETS
Loan fees 15,000 15,000
Franchise fees 30,000 30,000
---------- ----------
45,000 45,000
Less accumulated amortization (25,500) (21,000)
---------- ----------
19,500 24,000
Deposits 34,343 33,710
---------- ----------
Total other assets 53,843 57,710
---------- ----------
$4,637,276 $4,389,769
---------- ----------
2 The accompanying notes are an integral part of these financial
statements.
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18
SUPER 8 MOTELS NORTHWEST I
BALANCE SHEET
- --------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY
DECEMBER 31,
--------------------------
1996 1995
---------- ----------
CURRENT LIABILITIES
Accounts payable, trade $ 37,503 $ 49,240
Accounts payable, affiliates 29,609 76,564
Accrued expenses 88,307 84,299
Current portion of long-term debt 46,000 38,000
---------- ----------
Total current liabilities 201,419 248,103
---------- ----------
LONG-TERM DEBT, net of current portion
shown above 1,331,791 1,380,449
---------- ----------
ACCRUED PROPERTY MANAGEMENT FEES 605,348 605,348
---------- ----------
PARTNERS' EQUITY
General partner's equity 329,065 192,789
Limited partners' equity (authorized, issued and
outstanding 6,000 units) 2,169,653 1,963,080
---------- ----------
2,498,718 2,155,869
---------- ----------
$4,637,276 $4,389,769
---------- ----------
The accompanying notes are an integral part of these financial statements. 3
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19
SUPER 8 MOTELS NORTHWEST I
STATEMENT OF INCOME
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
SALES
Rooms $2,859,260 $2,219,855 $2,293,355
Other 116,665 99,187 121,919
---------- ---------- ----------
2,975,925 2,319,042 2,415,274
---------- ---------- ----------
DIRECT OPERATING EXPENSES
Payroll and related expenses 497,037 474,549 475,404
Supplies and maintenance 285,864 598,914 151,562
Utilities 154,073 142,569 141,005
Other 35,997 30,761 33,883
---------- ---------- ----------
972,971 1,246,793 801,854
---------- ---------- ----------
INDIRECT OPERATING EXPENSES
Taxes (principally property taxes)
and fees 124,915 126,524 130,685
Advertising and promotion 68,958 94,561 92,511
Bank and credit card charges 46,173 35,972 36,989
Insurance 29,144 29,250 23,619
Other 51,123 24,443 12,610
---------- ---------- ----------
320,313 310,750 296,414
---------- ---------- ----------
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative service fees 159,779 152,275 129,030
Property management fees 148,864 115,938 121,034
Franchise fees 114,192 88,894 89,782
Professional services 49,386 66,574 31,906
Other 34,218 20,704 25,341
---------- ---------- ----------
506,439 444,385 397,093
---------- ---------- ----------
FIXED CHARGES
Depreciation 106,116 103,390 93,279
Interest expense 128,631 88,797 50,229
Amortization 4,500 2,251 2,251
---------- ---------- ----------
239,247 194,438 145,759
---------- ---------- ----------
INCOME FROM OPERATIONS 936,955 122,676 774,154
OTHER INCOME 11,955 9,747 9,222
---------- ---------- ----------
NET INCOME $ 948,910 $ 132,423 $ 783,376
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 134.43 $ 18.76 $ 110.98
========== ========== ==========
4 The accompanying notes are an integral part of these financial statements.
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20
SUPER 8 MOTELS NORTHWEST I
STATEMENT OF CHANGES IN PARTNERS' EQUITY
YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
General Limited
Partner Partners Total
-------- ---------- ----------
BALANCE, December 31, 1993, as restated $ 67,542 $2,384,650 $2,452,192
Distributions paid (6,061) (600,000) (606,061)
Net income 117,506 665,870 783,376
-------- ---------- ----------
BALANCE, December 31, 1994 178,987 2,450,520 2,629,507
Distributions paid (6,061) (600,000) (606,061)
Net income 19,863 112,560 132,423
-------- ---------- ----------
BALANCE, December 31, 1995 192,789 1,963,080 2,155,869
Distributions paid (6,061) (600,000) (606,061)
Net income 142,337 806,573 948,910
-------- ---------- ----------
BALANCE, December 31, 1996 $329,065 $2,169,653 $2,498,718
======== ========== ==========
The accompanying notes are an integral part of these financial statements. 5
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21
SUPER 8 MOTELS NORTHWEST I
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
---------------------------------------
1996 1995 1994
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues and other income received in cash $ 2,985,522 $ 2,345,287 $ 2,412,161
Operating expenses paid in cash (1,847,462) (1,929,863) (1,610,514)
Interest paid (128,471) (89,744) (50,900)
----------- ----------- -----------
Net cash provided by operating activities 1,009,589 325,680 750,757
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (43,332) (653,803) (6,893)
Proceeds from sale of asset 3,000 -- --
----------- ----------- -----------
Net cash used in investing activities (40,332) (653,803) (6,893)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan -- 999,999 --
Payment of appraisal and loan fees -- (15,000) (1,945)
Principal payments on long-term debt (40,658) (86,990) (78,297)
Distributions to:
Limited partners (600,000) (600,000) (600,000)
General partner (6,061) (6,061) (6,061)
----------- ----------- -----------
Net cash (used in) provided by financing
activities (646,719) 291,948 (686,303)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 322,538 (36,175) 57,551
CASH AND CASH EQUIVALENTS,
beginning of year 222,146 258,321 200,770
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 544,684 $ 222,146 $ 258,321
----------- ----------- -----------
6 The accompanying notes are an integral part of these financial statements.
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22
SUPER 8 MOTELS NORTHWEST I
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- -------- ---------
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net income $ 948,910 $132,423 $ 783,376
---------- -------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 110,616 105,641 95,530
Loss on sale of asset 1,444 -- --
Change in asset and liabilities
Accounts receivable (2,358) 16,498 (12,335)
Inventory 184 6,664 7,579
Prepaid expenses 6,110 (9,135) (720)
Deposits (633) (1,240) (4,179)
Accounts payable (58,692) 73,397 (5,627)
Accrued expenses 4,008 1,432 1,300
Accrued management fees -- -- (114,177)
---------- -------- ---------
60,679 193,257 (32,629)
---------- -------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $1,009,589 $325,680 $ 750,747
========== ======== =========
The accompanying notes are an integral part of these financial statements. 7
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23
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 1 - PARTNERSHIP OPERATIONS
Super 8 Motels Northwest I is a Washington limited partnership. The
partnership owns and operates two motels: one in Federal Way,
Washington, and one in the vicinity of the Seattle-Tacoma International
Airport.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - Cash equivalents are investments with maturity at
date of purchase of three months or less.
INVENTORY - Inventory consists of various operating supplies which have
been valued at cost.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
are depreciated using straight-line and accelerated methods over
estimated useful lives as follows:
Years
-----
Land improvements 30
Buildings 25 and 30
Equipment, furniture and fixtures 5 and 7
LOAN FEES - Loan fees incurred in connection with financing for
remodeling the Sea-Tac motel are amortized over a 5 year period.
FRANCHISE FEES - Initial franchise fees are stated at cost;
amortization of this amount is provided using the straight-line method
over 20 years.
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.
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.
INCOME PER LIMITED PARTNERSHIP UNIT - Net income per limited
partnership unit is computed by dividing the limited partners' share of
net income by the limited partners' units outstanding for each year.
8
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24
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
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 equal to 10% per year through
the end of the partnership year for which the distribution is
being made, then
- Payment of unpaid balance of property management fees, if any.
(See Note 6)
- Any remaining cash will be distributed 15% to the general partner
and 85% to the limited partners.
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. At the years ended December 31, 1996, 1995 and
1994, the limited partners received a cumulative pretax return of 10%
and the partnership's net income for these years has been allocated 15%
to the general partner and 85% to the limited partners.
9
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25
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
1996 1995
---------- ----------
Note payable to bank, collateralized by real property; interest at 8.5%
and 7.5% for 1996 and 1995, respectively. The rate is adjustable
each year based on an amount equal to the monthly median cost of
funds index for FSLIC insured savings and loan associations plus
3.575%; or, if less, 1% plus such amount; payable in monthly
installments of $4,204 including interest; due January 2010. $ 397,511 $ 413,592
Line of credit, collateralized by deed of trust on real property. The
rate is variable at lender's prime rate plus 1%, payable in monthly
interest only payments through March 31, 1996, changing to monthly
payments of $9,768 plus interest; due February 2001. The bank's
prime rate of interest at December 31, 1996 is 8.25%. 980,280 999,999
Note payable to bank, collateralized by deed of trust on real property;
interest at 9.3%, payable in monthly installments of $6,273
including interest; paid in full in January 1996. -- 4,858
---------- ----------
1,377,791 1,418,449
Less current portion 46,000 38,000
---------- ----------
$1,331,791 $1,380,449
========== ==========
Based on the December 31, 1996 interest rates, principal payments
required on these notes during each of the next five years and
thereafter are as follows:
1997 $ 46,000
1998 50,000
1999 53,000
2000 57,000
2001 61,000
Thereafter 1,110,791
----------
$1,377,791
10
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26
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
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:
- Depreciating land improvements and buildings 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 15, 18, or 31.5 year life.
- Depreciating furniture and equipment for financial reporting
purposes using accelerated and straight-line methods over a 5 or 7
year life, and for federal income tax purposes using the
accelerated cost recovery method or the modified accelerated cost
recovery method over a 5 or 7 year life.
- Amortizing capitalized interest for federal income tax purposes
using a 10 year life and for financial reporting purposes
amortizing it over the life of the building.
- Deducting sales tax incurred prior to 1987 on property and
equipment acquisitions as an expense for federal income tax
purposes and capitalizing it for financial reporting purposes.
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax reporting purposes:
1996 1995 1994
---------- ---------- ----------
Net income as shown in the statement of
income $ 948,910 $ 132,423 $ 783,376
Additional depreciation and amortization
for income tax purposes (6,153) (59,171) (68,917)
Accrued property management fees -- -- (114,177)
Other 349 1,380 992
---------- ---------- ----------
Net income for federal income tax
reporting purposes $ 888,106 $ 74,632 $ 601,274
========== ========== ==========
11
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27
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 6 - RELATED-PARTY TRANSACTIONS
Transactions between the partnership and the general partner, Gerald L.
Whitcomb, and affiliates of the general partner are as follows:
1996 1995 1994
---------- ---------- ----------
Purchases of supplies and equipment $ 279,632 $ 106,529 $ 44,438
Administrative service fees $ 159,779 $ 152,275 $ 129,030
Property management fees $ 148,864 $ 115,938 $ 121,034
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 recorded as 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. This 10% was achieved during 1992.
Effective July 1, 1992, management began paying monthly the current
management fees.
However, since the partnership agreement states that the management
fees are to be paid out of operational cash flow, after paying the 10%
return to limited partners, no payment for management fees relating to
1990 and before has been made. These unpaid management fees totaling
$605,348 will be paid only when sufficient operational cash flow is
experienced. In 1994, all management fees were accrued with restatement
of prior years' information. See Note 9 for further discussion.
NOTE 7 - COMMITMENTS
FRANCHISE AGREEMENTS - The partnership has purchased franchise rights
to provide 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
respective agreements. In addition, 1% of gross room revenue is
remitted to Super 8 Motels for advertising and participation in the
national reservation system. This amount is
12
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28
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
included in advertising and promotion.
NOTE 7 - COMMITMENTS (CONTINUED)
LEASE COMMITMENTS - The partnership has an operating lease for
equipment at the Sea-Tac motel. The remaining term of the operating
lease is 2.5 years as of December 31, 1996.
Minimum lease payments based on current rents are as follows:
1997 $ 37,126
1998 37,126
1999 6,188
------------------
$ 80,440
==================
NOTE 8 - 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 notes payable
approximate fair value.
NOTE 9 - PRIOR-PERIOD ADJUSTMENT
As discussed in 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 December 31, 1993, financial statements were restated
to record unpaid property management fees totaling $719,525.
13
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29
SUPER 8 MOTELS NORTHWEST I
FOURTH QUARTER 1996
VOL. 16 NO. 4/JANUARY 31, 1997
NATIONAL NEWS
NEW RESERVATION SYSTEM GOES ONLINE
On December 1, 1996, Superline began operations of its new reservation
system featuring enhancements for both front desk agents at individual motels
and the reservation agents at Superline. These features will allow Super 8 to
provide better service to guests in several ways. The new reservation system
will allow Superline to book rooms up to twelve months in advance, provide a
more effective room inventory management system for individual properties, and
contribute to the addition of individual property pages for each motel through
the Super 8 Motel Home Page on the Internet.
Super 8 President Bob Weller recently thanked all those involved in
completing the upgrade process and stated, "For something that was initiated
just 18 months ago, we've come a long way in a relatively short period of
time."
BEDMAKING CHAMPIONSHIPS
Every other year Super 8 Motels, Inc. holds an International Bedmaking
Competition in which housekeepers from all over the United States and Canada
compete for a new car, cash and other great prizes. In previous years the
final competition has taken place during the Super 8 Motels International
Convention. However, this year Super 8 has decided not to hold an
international convention, but did not want to miss a year of the bedmaking
competition, so the finals will instead be held at the Mall of America in
Bloomington, Minnesota, on May 17, 1997. This is the first time that the
finals will be held in a public venue, and it will provide, even more
excitement for the contestants and great media exposure for Super 8, with a
large public audience sure to attend. This will put Super 8 in the public
spotlight and provide public recognition for the outstanding work and
enthusiasm of our housekeepers.
Regional competitions are already underway all across the United
States and Canada. Peninsula Management Northwest held its regional
competition in late November. Eighteen housekeepers from properties managed by
Peninsula Management Northwest have qualified for the next round of competition
to be held at the Super 8 Regional Meetings in Spokane, Washington, in March.
We wish them all luck.
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REGIONAL NEWS
ANNUAL MEETING
The Peninsula Management Northwest Annual Managers' Meeting was held
the first week of December at the corporate office in Tumwater, Washington.
The General Managers and Assistant Managers from each property attended the
three-day meeting, which included general sessions with CEO Gerald Whitcomb and
COO Sam Polack, as well as working meetings with the Regional Directors,
Marketing Director, and Human Resources Director to complete work on the
property budgets and organizational planning for 1997.
The meeting culminated with the annual dinner and awards presentation,
which this year was held at the Olympia Golf and Country Club. The award for
Manager of the Year went to Tom Zett, General Manager of the Portland Super 8.
Jean Gesh, Night Auditor at the Lacey Super 8 Motel was awarded Employee of the
Year. The Taul Watanabe Award for Excellence in Service was awarded by Gerald
and Maryanne Whitcomb to Larry Knudsen, Executive Vice President of The
Peninsula Group.
Awards for Highest Occupancy, Highest Average Daily Rate, Highest VIP
Sales, Highest GOP $, and Highest GOP % were presented to Bremerton, Anchorage,
Port Angeles, Sea Tac and Bremerton, respectively. Best Quality Assurance
Score went to Corvallis, Oregon. Lowest Turnover %, and Lowest Expenses (as a
percentage of total revenue) were awarded to Portland and Bremerton,
respectively. And finally, Wilsonville and Klamath Falls tied as the
properties with the lowest guest concerns for 1996.
NORTHWEST CONSTRUCTION
Construction is underway on an 85-room property in Redmond, Oregon.
This property is located on Highway 97, 16 miles north of the existing Bend
Super 8 Motel and Grand Opening is planned for June 27, 1997.
On January 27, 1997, The Peninsula Group held the long-awaited
ground-breaking for the Woodburn, Oregon, Super 8 Motel. The construction of
this property has been repeatedly delayed due to development fee escalation, as
discussed in the third quarter Update. However, months of negotiations have
produced the desired results and construction is now underway. The grand
opening is slated for late summer 1997.
As stated in the third quarter Update, a site in Roseburg, Oregon, has
also been acquired. Located on a new 1-5 interchange at the north end of
Roseburg, development of this site is due to begin in summer 1997 and will
include not only a 100-room Super 8 Motel, but also restaurants and a gas
station/convenience store.
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SUPER 8 MOTELS NORTHWEST I
OPERATIONS
The SeaTac Super 8 Motel ended the year with a very good fourth
quarter (see the enclosed charts), completing the year at almost 66% occupancy,
an increase of 14 occupancy points over 1995. More importantly, the Average
Daily Rate (ADR) went from $56.79 to $62.46, a hike of $5.68 or 10%. These
combined factors improved net room sales by 40%, or an increase of about
$520,000 when compared to 1995. These numbers are somewhat affected by the
fact that during the 1995 remodel there were many times that rooms were out of
service for renovation, but even so, it appears that the time and money put
into the remodel have begun to pay handsome returns.
During the fourth quarter the Federal Way Super 8 Motel continued its
trend of slight increases in occupancy and ADR over the same period in 1995.
For the year, the property rented 1,761 more rooms in 1996, for an increase of
8.02%, ending the year with an occupancy of 69.6%. The ADR increased by $1.39
to $46.13. Overall, net room sales increased by over $110,000 for an 11.6%
growth in net room revenue in 1996.
Enclosed are fourth quarter occupancy charts and average daily room
rate comparisons. Also enclosed is the unaudited year-end financial statements
which show that Total Sales in the partnership increased by $657,900 or 28%
over 1995. In examining the Net Income line, it is inappropriate to conclude
that 1996 Net Income increased by $839,424. It must be recognized that
extensive renovation expenses were allocated to Supplies and Maintenance during
1995. However, adjusting for the 1995/1996 variance in Supplies and
Maintenance, it would seem prudent to conclude that Net Income increased by at
least 100%.
Your fourth quarter distribution check is in the amount of $25.00 per
partnership unit. This distribution equates to a 10% annualized distribution
for the quarter, and brings the total distributions for 1996 to $100.00 per
partnership unit, or 10% per annum on each $1000 invested.
The Certified Public Accounting firm of Moss Adams is currently
performing the 1996 year-end audit of the partnership books. The audited
financial statement will be sent to you in April with the first quarter 1997
distribution packets.
TAX INFORMATION
Your 1996 income tax information will be mailed to you no later than
February 28, 1997, directly from the CPA firm. Please call the Corporate
Office at 360-943-8000 if you do not receive your tax information by March 5.
You only need to leave your name, current address, phone number, and
partnership interest with the receptionist and she will forward the information
to Investor Relations. Please do not call for the information before the above
date. The information is mailed directly from the CPA firm and is not
available before that date. If you have recently moved, please provide us with
your most current address before February 15 to
3
32
avoid any delay in the receipt of your tax information. Thank you for your
patience in this matter.
ANNUAL PARTNERSHIP MEETINGS
Your attendance is welcomed at the Annual Partnership Meetings.
Meeting schedules are as follows:
DATE: Monday, April 14, 1997
LOCATION: SeaTac Super 8 Motel 3100 South 192nd
SeaTac, Washington
TIME: 7:00 p.m.
- or -
DATE: Wednesday, April 16, 1997
LOCATION: Portland Super 8 Motel 11011 N.E. Holman
Portland, Oregon
TIME: 8:00 p.m.
We appreciate your support of Super 8 Motels Northwest I. If you are planning a
spring or summer vacation, call Superline at 1-800-800- 8000 to reserve your
room at any Super 8 Motel located in Canada and the U.S.
4