SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Period ended September 30, 1998 Commission File 0-8913
SUPER 8 MOTELS, LTD
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2514354
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 J Street
Sacramento, California 95814
- - -------------------------------------- ---------
Address of principle executive offices Zip Code
Registrant's telephone number,
Including area code (916) 442 - 9183
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 XX No __
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
<PAGE>
SUPER 8 MOTELS, LTD
(A California Limited Partnership)
INDEX
Financial Statements: PAGE
Balance Sheet - September 30, 1998 and December 31, 1997 2
Statement of Operations - Nine Months Ended
September 30, 1998 and 1997 3
Statement of Changes in Partners' Equity -
Nine Months Ended September 30, 1998 and 1997 4
Statement of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 5
Notes to Financial Statements 6
Management Discussion and Analysis 7 - 8
Other Information and Signatures 9 - 11
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Balance Sheet
September 30, 1998 and December 31, 1997
9/30/98 12/31/97
---------- ----------
ASSETS
Current Assets:
Cash and temporary investments $ 1,143,311 $ 812,763
Accounts receivable 218,024 126,154
Prepaid expenses 37,285 21,588
---------- ----------
Total current assets 1,398,620 960,505
---------- ----------
Property and Equipment:
Buildings 5,223,252 5,223,252
Furniture and equipment 1,242,715 1,147,274
---------- ----------
6,465,967 6,370,526
Accumulated depreciation (5,046,002) (4,858,036)
---------- ----------
Property and equipment, net 1,419,965 1,512,490
---------- ----------
Other Assets: 14,931 17,312
---------- ----------
Total Assets $ 2,833,516 $ 2,490,307
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable $ 32,645 $ 30,636
Accounts payable and accrued liabilities 235,906 217,743
---------- ----------
Total current liabilities 268,551 248,379
Long - Term Liabilities:
Note payable 877,184 901,925
---------- ----------
Total liabilities 1,145,735 1,150,304
---------- ----------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 84,933 75,455
Limited Partners (5,000 units authorized,
issued and outstanding) 1,602,848 1,264,548
---------- ----------
Total partners' equity 1,687,781 1,340,003
---------- ----------
Total Liabilities and Partners' Equity $ 2,833,516 $ 2,490,307
========== ==========
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Statement of Operations
For the Nine Months Ending September 30, 1998 and 1997
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
9/30/98 9/30/98 9/30/97 9/30/97
---------- ---------- ---------- ----------
Income:
Guest room $ 1,291,619 $ 3,281,988 $ 1,149,715 $ 3,145,420
Telephone and vending 16,386 47,798 20,165 63,515
Interest 9,257 23,583 8,082 28,443
Other 14,347 29,374 7,289 28,996
---------- ---------- ---------- ----------
Total Income 1,331,609 3,382,743 1,185,251 3,266,374
---------- ---------- ---------- ----------
Expenses:
Motel operating expenses
(Note 2) 680,166 1,890,096 657,178 1,847,621
General and administrative 24,943 58,311 18,163 63,293
Depreciation and amortization 65,753 193,446 61,962 186,326
Interest 19,389 58,653 20,022 60,512
Property management fees 66,050 167,792 58,861 161,668
Partnership management fees 22,222 66,667 87,500 122,222
---------- ---------- ---------- ----------
Total Expenses 878,523 2,434,965 903,686 2,441,642
---------- ---------- ---------- ----------
Net Income (Loss) $ 453,086 $ 947,778 $ 281,565 $ 824,732
========== ========== ========== ==========
Net Income (Loss) Allocable
to General Partners $4,531 $9,478 $2,816 $8,247
========== ========== ========== ==========
Net Income (Loss) Allocable
to Limited Partners $448,555 $938,300 $278,749 $816,485
========== ========== ========== ==========
Net Income (Loss)
per Partnership Unit $89.71 $187.66 $55.75 $163.30
========== ========== ========== ==========
Distribution to Limited
Partners per Partnership
Unit $40.00 $120.00 $37.50 $220.00
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Statement of Changes in Partners' Equity
For the Nine Months Ending September 30, 1998 and 1997
1998 1997
---------- ----------
General Partners:
Balance at beginning of year $ 75,455 $ 66,559
Net income (loss) 9,478 8,247
---------- ----------
Balance at end of period 84,933 74,806
---------- ----------
Limited Partners:
Balance at beginning of year 1,264,548 1,683,840
Net income (loss) 938,300 816,485
Distributions to limited partners (600,000) (1,100,000)
---------- ----------
Balance at end of period 1,602,848 1,400,325
---------- ----------
Total balance at end of period $ 1,687,781 $ 1,475,131
========== ==========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Statement of Cash Flows
For the Nine Months Ending September 30, 1998 and 1997
1998 1997
---------- ----------
Cash flows from operating activities:
Received from motel revenues $ 3,268,582 $ 3,280,150
Expended for motel operations and
general and administrative expenses (2,180,239) (2,229,695)
Interest received 22,291 27,031
Interest paid (58,814) (60,660)
---------- ----------
Net cash provided by operating activities 1,051,820 1,016,826
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (98,540) (74,684)
---------- ----------
Net cash provided (used) by investing activities (98,540) (74,684)
---------- ----------
Cash flows from financing activities:
Principal payments on notes payable (22,732) (20,886)
Distributions paid to limited partners (600,000) (1,100,000)
---------- ----------
Net cash provided (used) by financing activities (622,732) (1,120,886)
---------- ----------
Net increase (decrease) in cash
and temporary investments 330,548 (178,744)
Cash and Temporary Investments:
Beginning of period 812,763 1,058,309
---------- ----------
End of period $ 1,143,311 $ 879,565
========== ==========
Reconciliation of net income to net cash provided by operating activities:
Net income (loss) $ 947,778 $ 824,732
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 193,446 186,326
(Increase) decrease in accounts receivable (91,870) 40,807
(Increase) decrease in prepaid expenses (15,697) (16,464)
Increase (decrease) in accounts payable
and accrued liabilities 18,163 (18,575)
---------- ----------
Total adjustments 104,042 192,094
---------- ----------
Net cash provided by
operating activities $ 1,051,820 $ 1,016,826
========== ==========
The accompanying notes are an integral part of the financial statements.
- 5 -
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Notes to Financial Statements
For the Nine Months Ending September 30, 1998 and 1997
Note 1:
The attached interim financial statements include all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended December 31, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstatnces indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
In accordance with the partnership agreement, the following information is
presented related to fees paid or accrued to the General Partner or affiliates
for the period.
Property Management Fees $167,792
Franchise Fees $39,811
Partnership Management Fees $66,667
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods reported:
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
9/30/98 9/30/98 9/30/97 9/30/97
---------- ---------- ---------- ----------
Salaries and related costs $ 215,158 $ 627,240 $ 212,674 $ 623,184
Rent 49,134 145,180 49,093 145,130
Franchise and advertising 64,553 164,081 57,488 157,273
Utilities 57,672 138,889 52,593 138,745
Allocated costs,
mainly indirect salaries 74,946 221,221 65,818 198,453
Maintenance, repairs and
replacements 85,259 197,181 72,378 146,288
Property taxes 22,074 66,378 20,722 63,484
Property insurance 16,857 51,082 15,158 51,516
Other operating expenses 94,513 278,844 111,254 323,548
---------- --------- ---------- ----------
Total motel
operating expenses $ 680,166 $ 1,890,096 $ 657,178 $ 1,847,621
========== ========== ========== ==========
There are certain administrative expenses allocated between the Partnership and
other partnerships managed by the General Partner and its affiliates. These
expenses, which are based on usage, are telephone, data processing, rent of
administrative office and administrative salaries. Management believes that the
methods used to allocate shared administrative expenses are accurate.
The following additional material contingencies are required to be restated in
interim reports under federal securities law: None.
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<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SEPTEMBER 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has current assets of $1,398,620 which exceed its
current liabilities of $268,551 by $1,130,069. While the Partnership agreement
has no reserve requirement, the General Partner has set a $250,000 target (5% of
the Partnership's original capitalization).
Other than operating cash flow, additional borrowing against the
properties is the only realistic source of cash in the unlikely event that
reserves do not satisfy the Partnership's future cash requirements.
During the nine month period covered by this report, the Partnership's
expenditures for replacements and renovation totaled $174,470 or 5.3% of guest
room revenues. Included in that amount was $85,851 for guestroom and hallway
carpet replacements, $19,825 for parking lot repairs, $8,373 for three dryers,
$3,748 for a replacement ice machine, $6,742 for replacement guestroom chairs,
$8,070 for guestroom bathtub repairs, $4,300 for building painting and $8,076
for replacement guest room lamps.
RESULTS OF OPERATIONS
The following is a comparison of the first nine months of the fiscal
year ending September 30, 1998 with the corresponding period of the preceding
fiscal year.
Total income increased $116,369 or 3.6%. The major revenue item, guest
room revenue, increased $136,568 or 4.3%. An increase in the average daily room
rate from $49.72 during the first nine months of 1977 to $58.16 during the
corresponding period of 1998 was only partially offset by a decrease in the
average occupancy rate from 71.3% during the first nine months of 1997 compared
to an average occupancy rate of 63.6% during the corresponding period of 1998.
All three motel achieved increases in the average daily room rate and decreases
in the average occupancy rate. The South San Francisco motel achieved an
increase in guest room revenues which was partially offset by decreased revenues
at the Sacramento and Modesto motels.
- 7 -
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SEPTEMBER 30, 1998 (Continued)
Total expenses decreased $6,677 or 0.3% during the nine months of the
fiscal quarter ended September 30, 1998 as compared to the corresponding period
of the previous fiscal year. Increased motel operating expenses of $42,475 or
2.3% are related to increased maintenance expenditures required under the Super
8 inspection program and to allocated costs associated with legal expenses
related to the potential sale of the motels. Partnership management fees payable
to the general partners are equal to one-ninth of the amounts the amounts
distributed to the limited partners. In 1997 the limited partners received an
extraordinary $600,000 distribution and the general partner received an
additional $66,667 in partnership management fees.
FUTURE TRENDS
The General Partners anticipate an economic climate that is
substantially unchanged for 1998 as compared with the previous fiscal year. The
South San Francisco market, which traditionally generated 40% of the
Partnership's room revenue, has recovered from its depressed condition. The
General Partners have determined that a continuing cost control strategy will
provide the best immediate return to the Partnership.
The Sacramento property had significant occupancy from the McClellan
Air Force Base. The facility was added to the 1995 base closing list. The room
nights generated from this source will decline as the base operations are phased
out through 2002. The actual closing activity and the future use of the facility
should generate some business for the Sacramento motel.
As discussed in more detail in the following section labeled "Legal
Proceedings," the General Partners have agreed to offer the motels for sale and
to present any offer that equal or exceeds 75% of the appraised value for the
approval of the limited partners.
In 1996 the computers used by the Partnership at the Managing General
Partner's offices in Sacramento were updated. In the process of updating its
hardware and software, the Managing General Partner eliminated any potential
Year 2000 problem with respect to such computers. Similarly, the Managing
General Partner does not anticipate any material Year 2000 problem with the
computers in use at the motels. The Managing General Partner has not
investigated and does not know whether any Year 2000 problems may arise from its
third party vendors. Because the motels are "budget" motels, the Partnership's
most significant vendors are its utility providers and banks. To the extent
banking services, utility services and other goods and services are unavailable
as a result of Year 2000 problems with the computer systems of such vendors or
otherwise, the ability of the Partnership to conduct business at its motels
would be compromised. No contingency plans have been developed in this regard.
In the opinion of Management, these financial statements reflect all
adjustments which were necessary to a fair statement of results for the interim
periods presented. All adjustments are of a normal recurring nature.
- 8 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 27, 1997 a complaint was filed in the United States District
Court, Eastern District of California by the registrant, the Managing General
Partner, and four other limited partnerships (together with the registrant, the
"Partnerships") as to which the Managing General Partner serves as general
partner (i.e., Super 8 Motels II, Ltd., Super 8 Motels III, Ltd., Super 8
Economy Lodging IV, Ltd. and Famous Host Lodging V, L.P.), as plaintiffs. The
complaint named as defendants Everest/Madison Investors, LLC, Everest Lodging
Investors, LLC, Everest Properties, LLC, Everest Partners, LLC, Everest
Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst, David I.
Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management Corp.,
Jeffrey B. Citron, Ronald J. Kravit, and Stephen P. Enquist ( the "Everest
Defendants"). The factual basis underlying the plaintiffs' causes of actions
pertained to tender offers directed by certain of the defendants to limited
partners of the Partnerships, and to indications of interest made by certain of
the defendants in purchasing the property of the Partnerships. The complaint
requested the following relief: (i) a declaration that each of the defendants
had violated Sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of
1934 (the "Exchange Act"), and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder; (ii) a declaration that certain
of the defendants had violated Section 15(a) of the Exchange Act and the rules
and regulations thereunder; (iii) an order permanently enjoining the defendants
from (a) soliciting tenders of or accepting for purchase securities of the
Partnerships, (b) exercising any voting rights attendant to the securities
already acquired, (c) soliciting proxies, and (d) violating Sections 13 or 14 of
the Exchange Act or the rules and regulations promulgated thereunder; (iv) an
order enjoining certain of the defendants from violating Section 15(a) of the
Exchange Act and the rules and regulations promulgated thereunder; (v) an order
directing certain of the defendants to offer to each person who sold securities
to such defendants the right to rescind such sale; and (vi) a declaration that
the Partnerships need not provide to the defendants a list of limited partners
in the Partnerships or any other information respecting the Partnerships which
is not publicly available.
On October 28, 1997 a complaint was filed in the Superior Court of the
State of California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC, as plaintiffs, against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnerships, as
nominal defendants. The factual basis underlying the causes of action pertained
to the receipt by the defendants of franchise fees and reimbursement of
expenses, the indications of interest made by the plaintiffs in purchasing the
properties of the nominal defendants, and the alleged refusal of the defendants
to provide information required by the terms of the Partnerships' partnership
agreements and California law. The complaint requested the following relief: (i)
a declaration that the action has a proper derivative action; (ii) an order
requiring the defendants to discharge their fiduciary duties to the Partnerships
and to enjoin them from breaching their fiduciary duties; (iii) disgorgement of
certain profits; (iv) appointment of a receiver; and (v) an award for damages in
an amount to be determined.
- 9 -
<PAGE>
PART II. OTHER INFORMATION (Continued)
On February 20, 1998, the parties entered into a settlement agreement
and both of the above complaints were dismissed. Pursuant to the terms of the
settlement agreement, among other things, the General Partner has agreed to
proceed with the marketing for sale of the properties of the Partnerships, if by
June 30, 1998, it receives an offer to purchase one or more properties for a
cash price equal to 75% or more of the appraised value. In addition, the General
Partner has agreed to submit the offer for approval to the limited partners as
required by the partnership agreements and applicable law. The General Partner
has also agreed that upon the sale of one or more properties, to distribute
promptly the proceeds of the sale after payment of payables and retention of
reserves to pay anticipated expenses. The Everest Defendants agreed not to
generally solicit the acquisition of any additional units of the Partnerships
without first filing necessary documents with the SEC. Under the terms of the
settlement agreement, the Partnerships have agreed to reimburse the Everest
Defendants for certain costs not to exceed $60,000, to be allocated among the
Partnerships. Of this amount, the Partnership will pay approximately $12,000
during the year covered by this report.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matter to the Vote of Security Holders
None
Item 5. Other Information
See Notes to Financial Statements
Item 6. Exhibits and Reports on Form 8-K
None
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUPER 8 MOTELS, Ltd.
11-14-98 By /S/ Philip B. Grotewohl
- - -------- --------------------------------
Date Philip B. Grotewohl,
Chairman of Grotewohl Management
Services, Inc.,
Managing General Partner
11-14-98 By /S/ Philip B. Grotewohl
- - -------- --------------------------------
Date Philip B. Grotewohl,
Chief executive officer,
chief financial officer,
chief accounting officer
and sole director of
Grotewohl Management Services, Inc.,
Managing General Partner
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,143,311
<SECURITIES> 0
<RECEIVABLES> 218,024
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,398,620
<PP&E> 6,465,967
<DEPRECIATION> 5,046,002
<TOTAL-ASSETS> 2,833,516
<CURRENT-LIABILITIES> 268,551
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,687,781
<TOTAL-LIABILITY-AND-EQUITY> 2,833,516
<SALES> 3,329,786
<TOTAL-REVENUES> 3,382,743
<CGS> 1,890,096
<TOTAL-COSTS> 1,890,096
<OTHER-EXPENSES> 486,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,653
<INCOME-PRETAX> 947,778
<INCOME-TAX> 0
<INCOME-CONTINUING> 947,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 947,778
<EPS-PRIMARY> 187.66
<EPS-DILUTED> 187.66
</TABLE>
