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 Quarter Ended: June 30, 1998
Commission File Number: 2-76543
SUPER 8 MOTELS NORTHWEST II
Washington 91-1172558
PART 1
Financial Information
Item 1. Financial Statements
See attached unaudited June 30, 1998 Financial Statements and the partnership's
balance sheet for the year ended December 31, 1997. The Statement of Cash Flows
is omitted from the attachment and is presented as follows:
PERIOD ENDED JUNE 30,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues and other income received in cash $ 1,563,720 $ 1,569,726
Operating expenses paid in cash (1,237,760) (1,330,711)
Interest paid (103,073) (119,454)
----------- -----------
Net cash provided by operating activities 222,887 119,561
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net -- (934)
----------- -----------
Net cash used by investing activities -- (934)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance 40,153 (75,627)
Distributions to partners (238,352) (238,353)
----------- -----------
Net cash used by financing activities (198,199) (313,980)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,688 (195,353)
CASH AND CASH EQUIVALENTS, beginning of period 387,878 551,202
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 412,566 $ 355,849
=========== ===========
2
PERIOD ENDED JUNE 30,
1998 1997
--------- ---------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss) 242,819 $ 292,991
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 79,980 87,683
Lease expense - deferred 11,345 1,888
Change in assets and liabilities
Accounts receivable (13,181) 3,806
Inventory (2) --
Prepaid expenses (4,665) 6,252
Accounts payable 44,290 (5,683)
Accrued expenses (37,699) (42,376)
Accrued management fees (100,000) (225,000)
--------- ---------
(19,932) (173,430)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 222,887 $ 119,561
========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
See attached Second Quarter (6/30/98) Update from the Issuer delivered to its
limited partners.
As an update to the newsletter, the marketing efforts conducted by the
investment banking firm have not produced offers which the General Partner
believes would be acceptable to the Partnership and, accordingly, the General
Partner is actively examining alternate strategies to provide potential
liquidity to the 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.
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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: /s/ Gerald L. Whitcomb
-----------------------------------------
Gerald L. Whitcomb, General Partner
Dated: August 6, 1998
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SUPER 8 MOTEL UPDATE
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VOL. 18 NO. 2/JULY 31, 1998 SUPER 8 MOTELS NORTHWEST II SECOND QUARTER 1998
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NATIONAL NEWS
100,000TH ROOM OPENS IN SPRING
Super 8 Motels, Inc., recently announced the grand opening in Austin, Texas,
of its 100,000th guest room. The occasion was marked by Super 8 President and
CEO Bob Weller, "Our 100,000th room is a special milestone that indicates our
continuing strong growth. The quality of this motel is also indicative of the
impressive properties we are bringing into the system."
As of June, the room count had grown to 101,663. Indicative of Super 8's
continued efforts to meet guest expectations, 90% of all motels are now
designating a portion of their rooms as non-smoking rooms. Seventy percent of
motels offer a continental breakfast, and 90% accept all major credit cards and
have fax machine services available.
5,000,000TH VIP MEMBER WELCOMED AT CONVENTION
The 5,000,000th VIP Club member was welcomed on stage at this year's Super 8
Convention in Orlando. Bill Dyas, a school bus driver who frequently stays at
Super 8 Motels while driving athletic teams, joined the Club at the McCall,
Idaho, Super 8 Motel.
With 700,000 travelers joining the club in 1997, an average of one new
membership every 45 seconds, Super 8's VI P Club continues to grow at an
unprecedented rate. The VIP Club is the largest guest loyalty program in the
economy lodging segment. Its membership had climbed to 5,243,502 by June of this
year.
SUPER 8 MOTELS CREATES MANAGERS ADVISORY BOARD
Also announced at Convention was the formation of the industry's first
formalized Managers Advisory Board. During May, eight general managers were
chosen to join the Advisory Board, which will be meeting quarterly beginning in
August. This Board will complement the Franchisee Advisory Board, on which The
Peninsula Group's CEO Gerald Whitcomb serves, in order to receive input from
those responsible for day-to-day operations.
ON-LINE BOOKINGS TAKE A BOOST
Super 8's website continues to be a great success! As of May, a total of 618
Super 8 properties offered on-line booking. After viewing demonstrations at the
Convention, 113 properties chose to go on-line with the optional booking
capability. One of the most compelling reasons to go on-line is that the average
daily rate statistics for on-line reservations for 1997 show the Internet
average daily rate as $50.67. When compared to the Superline average daily rate
of $42.52, the Internet average daily rate is $8.15 higher.
There is also an 1126% increase in "page views" (the number of times the
website has been accessed) over the previous year, bringing the current number
to an all-time high of 785,269. New highlights on the Super 8 website include a
customer service Internet link for on-line guests, on-line registration for the
VIP Club, and a franchise sales page for information and application requests.
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SUPER 8 MOTELS NORTHWEST II
Super 8 Motels Northwest II had essentially flat second quarter results
when compared to second quarter 1997. Year-to-date "Total Sales" remain slightly
ahead of 1997. This is the result of a slight rise in occupancy in Bremerton
offset by slight decreases in Portland and Yakima. Average daily rate increased
only nominally in Portland and Bremerton and decreased in Yakima. Occupancy and
room rate charts are enclosed for your review.
Overall, expenses were well controlled. The tight labor market and mandated
minimum wage increases generated an upward trend for "Payroll & Related
Expenses," while the extensive renovation in Bremerton during the first quarter
increased the "Supplies and Maintenance" line item. Net income for the
partnership year to date is $242,819. The partnership is in strong financial
condition with an excellent cash reserve and good ratio of current expenses to
current liabilities.
You will also find enclosed the year-to-date unaudited financial
statements. Your second quarter 1998 distribution is in the amount of $25.00 per
unit. This distribution equals a 1 0% annualized return on your original
investment.
During the second quarter of 1998, the General Partner engaged an
investment banking firm for the purpose of marketing The Peninsula Group, its
affiliates and subsidiaries, including the assets of Super 8 Motels Northwest
II. This effort is being made in order to take advantage of existing market
conditions and to provide liquidity for all investors. While, to date, no
definitive agreements have been reached with any prospective purchaser, efforts
are continuing.
Once again, it should be noted that there continue to be offers made by
various liquidity funds to purchase units at what appear to be substantial
discounts. While there can be no assurance as to the actual value which may be
realized upon sale of the assets and/or liquidation of the partnership, each
investor should take note of the efforts being made by the General Partner to
create liquidity and to gain maximum value for all investors. If you find a need
to dispose of your units you are urged to call your NASD registered securities
representative, or the partnership office, so that you may be assisted in
disposing of your units.
Thank you for your continued support of Super 8 Motels Northwest II, and
remember, when you are traveling-THINK SUPER 8-and call 1-800-800-8000 for
reservations.
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SUPER 8 NORTHWEST II
BALANCE SHEET
JUNE 30, 1998 AND 1997
(Unaudited)
ASSETS
1998 1997
----------- -----------
CURRENT ASSETS
Cash $ 412,566 $ 355,849
Accounts receivable 28,223 16,800
Inventory 58,860 58,319
Prepaid expenses 11,577 5,361
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TOTAL CURRENT ASSETS 511,226 436,329
PROPERTY AND EQUIPMENT
Land 714,301 714,301
Buildings 4,097,106 4,097,106
Equipment, furniture and fixtures 1,242,262 1,242,261
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Subtotal 6,053,669 6,053,668
Less accumulated depreciation (2,984,559) (2,823,927)
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TOTAL PROPERTY AND EQUIPMENT, NET 3,069,110 3,229,741
OTHER ASSETS
Franchise fees 45,000 45,000
Organization costs 6,000 6,000
Deposits and bank fees 26,375 26,375
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Subtotal 77,375 77,375
Less accumulated amortization (53,469) (48,632)
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Subtotal 23,906 28,743
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TOTAL OTHER ASSETS 23,906 28,743
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TOTAL ASSETS $ 3,604,242 $ 3,694,813
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LIABILITIES AND PARTNER'S CAPITAL EQUITY
1998 1997
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CURRENT LIABILITIES
Accounts payable - trade $ 81,372 $ 79,884
Accounts payable - affiliates 34,719 45,117
Accrued expenses 70,678 84,102
Current portion of long-term debt 184,173 180,393
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TOTAL CURRENT LIABILITIES 370,942 389,496
NONCURRENT LIABILITIES
Accrued rent under lease agreement 163,895 138,909
Long-term debt, net of current portion shown above 2,205,995 2,244,782
Accrued property management fees 250,000 474,048
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TOTAL NONCURRENT LIABILITIES 2,619,890 2,857,739
PARTNER'S CAPITAL EQUITY
General partner 96,702 71,828
Limited partners 516,708 375,750
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TOTAL PARTNER'S CAPITAL EQUITY 613,410 447,578
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$3,604,242 $3,694,813
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SUPER 8 NORTHWEST II
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDING JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
------------ ------------
SALES
Rooms $ 1,518,460 $ 1,510,640
Other 54,865 51,071
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TOTAL SALES 1,573,325 1,561,711
DIRECT OPERATING EXPENSES
Payroll and related expenses 341,581 327,442
Supplies and maintenance 200,957 109,935
Utilities 92,468 94,958
Other 17,206 14,623
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TOTAL DIRECT OPERATING EXPENSES 652,212 546,958
INDIRECT OPERATING EXPENSES
Advertising and promotion 40,137 42,231
Bank and credit card charges 22,424 21,059
Insurance 19,657 19,117
Property and business taxes 61,004 71,486
Other 4,029 6,494
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TOTAL INDIRECT OPERATING EXPENSES 147,251 160,387
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative service fees 87,488 107,530
Franchise fees 60,738 60,426
Management fees 78,666 78,086
Professional services 15,649 16,343
Other 16,607 15,720
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TOTAL ADMINISTRATIVE AND GENERAL
EXPENSES 259,148 278,105
FIXED CHARGES
Amortization 2,419 2,419
Depreciation 77,563 85,264
Interest 110,435 119,160
Lease expense 73,709 72,871
Deferred land lease 11,345 7,765
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TOTAL FIXED CHARGES 275,471 287,479
INCOME FROM OPERATIONS 239,243 288,782
OTHER INCOME
Interest income 3,576 4,209
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TOTAL OTHER INCOME 3,576 4,209
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NET INCOME (LOSS) $ 242,819 $ 292,991
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SUPER 8 NORTHWEST II
BALANCE SHEET
ASSETS
DECEMBER 31,
----------------------------------
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 387,878 $ 551,202
Accounts receivable, trade 15,042 17,457
Accounts receivable, affiliates -- 3,149
Inventory 58,858 58,319
Prepaid expenses 6,912 11,613
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Total current assets 468,690 641,740
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PROPERTY AND EQUIPMENT, at cost
Land 714,301 714,301
Buildings 4,097,107 4,097,107
Equipment, furniture and fixtures 1,242,261 1,241,326
------------ ------------
6,053,669 6,052,734
Less accumulated depreciation (2,906,997) (2,738,663)
------------ ------------
3,146,672 3,314,071
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OTHER ASSETS
Loan fees 26,375 26,375
Franchise fees 45,000 45,000
Lease option costs 6,000 6,000
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77,375 77,375
Less accumulated amortization (51,051) (46,214)
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Total other assets 26,324 31,161
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$ 3,641,686 $ 3,986,972
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SUPER 8 NORTHWEST II
BALANCE SHEET
LIABILITIES AND PARTNERS' EQUITY
DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
CURRENT LIABILITIES
Accounts payable, trade $ 17,862 $ 47,021
Accounts payable, affiliates 53,939 83,663
Accrued expenses 108,377 126,478
Current portion of long-term debt 127,000 155,000
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Total current liabilities 307,178 412,162
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NONCURRENT LIABILITIES
Long-term debt, net of current portion shown above 2,223,015 2,345,801
Accrued rent under lease agreements 152,550 137,021
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2,375,565 2,482,822
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ACCRUED PROPERTY MANAGEMENT FEES 350,000 699,048
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COMMITMENTS (Notes 7 and 9)
PARTNERS' EQUITY
General partners' equity 96,031 63,632
Limited partners'equity (authorized, issued and
outstanding 4,052 units) 512,912 329,308
------------ ------------
608,943 392,940
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$ 3,641,686 $ 3,986,972
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