SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ___________
Commission file number 0-9218
SUPER 8 MOTELS II, LTD.
(Exact name of registrant as specified in its charter)
California 94-2574309
(State or other jurisdiction of (I.R.S. Employer iden-
incorporation or organization) tification No.)
2030 J Street, Sacramento, California 95814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 442-9183
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
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 such shorter period that the registrant
has been required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days. Yes _x_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Inapplicable.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. BUSINESS
General Development of Business
Super 8 Motels II, Ltd. (the "Partnership") is a limited partnership
which was organized under the Uniform Limited Partnership Act of the State of
California on May 7, 1979. The Managing General Partner of the Partnership is
Grotewohl Management Services, Inc., a California corporation which is 50% owned
by Philip B. Grotewohl. The Associate General Partner of the Partnership is
Robert J. Dana. The Associate General Partner does not have general
responsibility in connection with the management of the business affairs of the
Partnership. The Managing General Partner and the Associate General Partner
are sometimes hereinafter referred to as the "General Partners."
Through two intrastate offerings of units of limited partnership
interest in the Partnership (the "Units"), the Partnership sold 7,000 Units at a
price of $1,000 per Unit.
The net proceeds of the two offerings were expended for the acquisition
and development of two properties located in Santa Rosa, California, and
Ontario, California. A fee interest was acquired in the Ontario property and a
leasehold interest was acquired in the Santa Rosa property. Motel operations
commenced on November 12, 1980 at the Santa Rosa property, and on May 29, 1981
at the Ontario property. The Ontario property was sold on February 14, 1990.
There is hereby incorporated by reference herein the information
regarding the Partnership's motel property contained in Part I, Item 2 of this
report under the caption "Properties."
Narrative Description of Business
The Partnership's business is to operate its motel property and to
engage in any and all general business activities related or incidental thereto.
The Partnership's motel is operated pursuant to a franchise originally acquired
from Super 8 Motels, Inc. through Super 8 Management Corporation as a
subfranchisor, under the name "Super 8 Motel."
Super 8 Motels, Inc. is a South Dakota corporation which was organized
in 1972. Its first franchised motel commenced operation in 1974 and, as of
October 16, 1998, it had a total of 1,740 franchised motels having an aggregate
of 105,222 guest rooms in operation. On April 30, 1993, Super 8 Motels, Inc.
became a wholly-owned subsidiary of Hospitality Franchise Systems, Inc. ("HFS").
In addition to Super 8 Motels, HFS is also the franchisor of hospitality
properties under the Howard Johnson, Ramada, Voyager Lodge, Knights Inn,
Winngate Inn, Travelodge and Days Inn tradenames.
Motels franchised by Super 8 Motels, Inc. are budget motels in that
they offer room rates near the lower end of the room rate scale in each area in
which they are located. Such lower rates are made possible by the elimination of
certain features present in many higher-priced facilities, such as meeting rooms
and large lobbies; by not operating restaurants or cocktail lounges in
connection with the motels; and by utilizing uniform construction methods
(adapted only slightly to fit specific locales) which have been developed by
Super 8 Motels, Inc. and a standardized design which facilitates maintenance and
minimizes overhead expense.
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Super 8 Motels offer accommodations at the upper end, in terms of
facilities and prices, of the budget segment of the lodging industry. Generally,
Super 8 Motels offer larger rooms and higher quality furniture and furnishings
than motels franchised under the tradenames Motel 6, Regal 8 and E-Z 8. Rates in
the Super 8 Motels tend to exceed those offered by the chains mentioned above.
By terms of the franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
and contributes an additional 1% of its gross room revenues to a fund
administered by Super 8 Motels, Inc. to finance the national advertising
program. Neither the Partnership nor the Managing General Partner has any equity
or other interest in Super 8 Motels, Inc.
Brown & Grotewohl (the "Manager"), a California general partnership
which is an affiliate of the Managing General Partner, manages and operates the
Partnership's motel. The Manager's management responsibilities include, but are
not limited to, the supervision and direction of the Partnership's employees who
operate the motel, the establishment of room rates, and the direction of the
promotional activities of the Partnership's employees. In addition, the Manager
directs the purchase of replacement equipment and supplies, maintenance activity
and the engagement or selection of all vendors, suppliers and independent
contractors. The Partnership's financial accounting activities are performed by
the motel staff and a centralized accounting staff, all of which work under the
direction of the Managing General Partner or the Manager. Together, these staffs
perform all bookkeeping duties in connection with the motel, including all
collections and all disbursements to be paid out of funds generated by such
operations or otherwise supplied by the Partnership.
As of December 1, 1998, the Partnership employed a total of 14 persons,
either full- or part-time, at its motel, including six desk clerks, six
housekeeping and laundry personnel, one maintenance personnel and one manager.
In addition, and as of the same date, the Partnership employed eleven persons in
administrative positions at its central office in Sacramento, California, all of
whom worked for the Partnership on a part-time basis. They included accounting,
investor services, sales and marketing, motel supervisory, secretarial and
purchasing personnel, including David Grotewohl, son of Philip Grotewohl, whom
the Partnership employs on as Director of Operations and as an attorney, and,
until April 30, 1998, Mark Grotewohl, whom the Partnership employed as marketing
and sales director.
The motel located in Santa Rosa, California, which consists of 100
guest rooms, commenced operations on November 12, 1980. The average occupancy
rates and average room rates for the period from October 1, 1995 to September
30, 1998, are as follows:
1995 - 1996 1996 - 1997 1997 - 1998
-------------- -------------- ---------------
Average Occupancy Rate 53% 60% 51%
Average Room Rate $44.49 $45.65 $50.31
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The following existing lodging facilities provide direct or indirect
competition to the Partnership's Santa Rosa motel:
APPROXIMATE
DISTANCE FROM
NUMBER OF PARTNERSHIP'S
FACILITY ROOMS MOTEL (IN MILES)
--------------------------------------------------------------------
Motel 6 100 Adjacent
Motel 6 119 0.5 miles
Los Robles Inn 90 0.5 miles
Sandman Motel 112 0.5 miles
Ramada Inn 50 0.5 miles
Holiday Inn Express 95 1.0 mile
Days Inn 160 1.5 miles
TraveLodge 60 2.0 miles
Best Western Garden Inn 100 3.0 miles
The Santa Rosa motel draws its business from a variety of sources,
including corporate travelers, vacationers and tourists, convention attendees
and sports teams. The Santa Rosa motel has no single customer the loss of which
would have a materially adverse effect on the motel's operations.
During November 1998 the Partnership submitted to the limited partners
of the Partnership (the "Limited Partners") a consent solicitation statement
soliciting the consent of the Limited Partners to the sale of the Partnership's
motel and related assets at a purchase price of $2,200,000. The Limited Partners
have consented to such sale by majority vote. As of December 17, 1998, the buyer
had not yet obtained the necessary financing to complete the sale. If the
financing is obtained in a timely fashion, the Managing General Partner
anticipates that the motel will be sold and the Partnership liquidated during
the second fiscal quarter of 1999. If so, the Partnership would be terminated
shortly thereafter. If not, the Managing General Partner would entertain offers
to purchase the motel and related assets and would submit one or more of such
offers to the Limited Partners for approval, in the discretion of the Managing
General Partner. Pending any sale of the motel, the Partnership will continue to
operate the motel as usual.
Item 2. PROPERTIES
On January 8, 1980, the Partnership acquired by long-term lease a
parcel of approximately three acres of unimproved land located at 2632 N.
Cleveland Avenue, Santa Rosa, California, adjacent to U.S. Highway 101.
Effective May 1, 1981, the lease was amended to delete an area comprising
approximately 32,600 square feet from the lease. A restaurant facility was
subsequently built on this deleted portion.
The term of the lease extends until August 31, 2015, with a possible
extension of the term for up to an additional 15 years through exercise by the
Partnership of three five-year renewal options. Base rental payments are subject
to adjustment at three-year intervals to reflect changes in the Consumer Price
Index. The base rent is $8,398 per month from September 1, 1997 through August
31, 2000. Such rent is net to the lessor of property taxes and assessments,
utilities and other expenses relating to the land.
In April 1980, construction of the Partnership's 100-room motel was
commenced on the site. The motel opened for operations immediately after
construction was completed on November 12, 1980.
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The lease provides that the improvements constructed by the Partnership
on the leased premises will remain the property of the Partnership during the
lease term but that, upon expiration of the lease, title to any such
improvements will pass to the lessor.
Item 3. LEGAL PROCEEDINGS
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
5
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Units are not freely transferable and no public market for the
Units has developed or is expected to develop.
Holders
As of December 1, 1998, a total of 1,009 investors ("Limited Partners")
held Units in the Partnership.
Distributions
Cash distributions are made on a quarterly basis from Cash Available
for Distribution, defined in the Partnership's Certificate and Agreement of
Limited Partnership (the "Partnership Agreement") as Cash Flow, less adequate
cash reserves for obligations of the Partnership for which there is no
provision. Cash Flow means cash funds provided from operations of the
Partnership, without deduction for depreciation, but after deducting cash funds
used to pay or provide for the payment of debt service, capital improvements and
replacements and the operating expenses of the Partnership's property.
In addition, the Partnership will promptly distribute net proceeds of
the sale and refinancing of its motel properties to the General Partners and the
Limited Partners of the Partnership (the "Limited Partners"), to the extent such
proceeds are not reinvested in the acquisition of additional properties.
The following distributions to the Limited Partners were made during
the last two fiscal years:
Total Amount
Date Distribution Per Unit
-------------------------------------------------
11-15-96 $21,000 $3.00
2-15-97 $35,000 $5.00
3-3-97 $280,000 $40.00
5-15-97 $35,000 $5.00
8-15-97 $52,500 $7.50
11-15-97 $52,500 $7.50
2-15-98 $52,500 $7.50
5-15-98 $52,500 $7.50
8-15-98 $52,500 $7.50
Item 6. SELECTED FINANCIAL DATA
Following are selected financial data of the Partnership for the fiscal
years ended September 30, 1998, 1997, 1996, 1995 and 1994.
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SUPER 8 MOTELS II, LTD.
Item 6. Selected Financial Data
Years Ended September 30:
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Total Income $956,802 $1,032,367 $889,283 $850,781 $827,562
Motel Room Income $930,658 $995,707 $856,246 $829,326 $808,505
Net Income (Loss) $23,437 $213,399 $101,430 $31,089 $(31,564)
Per Partnership Unit:
Cash distributions (1) $30.00 $60.50 $3.00 - -
Net income (loss) $3.31 $30.18 $14.35 $4.40 $(4.46)
September 30:
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Total Assets $ 881,220 $1,067,776 $1,268,224 $1,172,917 $1,122,106
Long-Term Debt - - - - -
(1) On an annual basis, to the extent cash distributions exceed net income,
Limited Partners receive a return of capital rather than a return on capital.
However, an annual analysis will be misleading if the Limited Partners do not
receive their investment back upon liquidation of the Partnership. For those
investors who purchased their Units directly from the Partnership, the original
investment was $1,000 per Unit, cumulative allocations of income through
September 30, 1998 were approximately $703 per Unit, and cumulative
distributions through September 30, 1998 were approximately $1,455 per Unit.
Investors who did not purchase their Units directly from the Partnership must
consult with their own advisers in this regard.
7
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity
The Managing General Partner believes that the Partnership's liquidity,
defined as its ability to generate sufficient amounts of cash to satisfy its
cash needs, is adequate. Current assets of $350,409 exceed current liabilities
of $108,813 by $241,596 as of September 30, 1998 as compared with $377,246 for
the same date in the previous fiscal year.
The Managing General Partner has a reserve target equal to 5% of
"Adjusted Capital Contributions," or $174,716 (5% of $3,494,317). "Adjusted
Capital Contributions" is computed as the original amount raised ($7,000,000)
less the $259,154 returned to the Limited Partners in 1982 from the sale of
excess Ontario land, and less the $3,246,529 returned to the Limited Partners
from the 1990 Ontario motel sale. The $241,596 excess of current assets over
current liabilities exceeds the reserve target.
The Partnership's primary source of liquidity is its gross revenues
from operations. As noted below, the Partnership has a positive cash flow from
motel operations. In addition, the Partnership's equity in its Santa Rosa motel,
which is presently unencumbered, would provide a potential source of liquidity
through financing in the event the Partnership's liquidity were impaired. There
can be no assurance, however, that the Partnership could borrow against such
equity on favorable terms should additional liquidity be required.
In August 1996, the Managing General Partner authorized the resumption
of distributions at a modest $3 per Unit per quarter. The most recent
distribution was $7.50 per Unit per quarter. An extraordinary distribution of
$40.00 per Unit was made in March 1997 from reserves which the managing General
Partner deemed no longer necessary.
Capital Resources
The Partnership owns and operates one motel property, a 100-room
lodging facility located on leased land in Santa Rosa, California.
The Partnership currently has no material commitments for capital
expenditures. Its motel property is in full operation, and no further property
acquisitions or extraordinary capital improvements are contemplated. If the
motel is not sold and the Partnership is not terminated, except as described
below, the Managing General Partner is aware of no material trends or changes
with respect to the mix or relative cost of the Partnership's capital resources.
Working capital is expected to be generated by revenues from operations.
During the fiscal year ended September 30, 1998, the Partnership
capitalized $25,784 of the $51,896 spent on the refurbishment of its motel and
furnishings. Included in the capitalized items were $14,652 for replacement
carpet, $6,467 for 24 televisions and $4,665 for replacement lamps. The
non-capitalized renovations included $8,595 for exterior painting, $6,200 for
renovation of the courtyard landscaping and $4,100 for parking lot remodeling.
8
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During the fiscal year ended September 30, 1997, the Partnership
expended $61,087 on renovations and replacements ($43,159 of which was
capitalized). Included in these amounts was $28,669 for guest room and corridor
carpeting, $8,024 for a replacement washing machine, $4,459 for six replacement
room air-conditioning units and $3,660 for furniture refurbishment.
Results of Operations
Partnership's Overall Financial Results
The following is a comparison of combined results for the twelve-month
periods ending September 30, 1996, 1997 and 1998. Comparative revenue and
expense data is included in the financial statements found in Item 8.
During the fiscal year covered by this report as compared to the
previous fiscal year, the Partnership experienced a $75,565 (or 7.3%) decrease
in total income. This decrease was due primarily to a $65,049 (or 6.5%) decrease
in motel room revenue. The decreased room revenue is discussed under the Santa
Rosa Motel caption below.
During the fiscal year ended September 30, 1997 as compared to the
previous fiscal year, the Partnership achieved a $143,084 (or 16.1%) increase in
total income. This increase was due primarily to a $139,461 (or 16.3%) increase
in motel room revenue. The increased room revenue is discussed under the Santa
Rosa Motel caption below.
During the fiscal year covered by this report as compared to the
previous fiscal year, the Partnership experienced a $114,397 (or 14.0%) increase
in total expenses. The increase in motel operations is discussed below in more
detail. The $55,048 or 125.9% increase in general and administrative expenses
was due primarily to increased legal fees associated with the legal proceedings
discussed in last year's annual report, which were settled in February 1998, the
negotiations and the drafting of the sale contract discussed in Item 1, and the
preparation of the consent solicitation statement also discussed in item 1.
During the fiscal year ended September 30, 1997 as compared to the
previous fiscal year, the Partnership experienced a $31,115 (or 3.9%) increase
in total expenses. This increase is related to increased property occupancy and
is discussed below in more detail.
Santa Rosa Motel
The following is a comparison of operating results of the Partnership's
Santa Rosa motel for the twelve-month periods ended September 30, 1996, 1997 and
1998. The income and expense numbers in the following table are shown on an
accrual basis and other payments on a cash basis. Total expenditures and debt
service include the operating expenses of the motel, together with the cost of
capital improvements.
Average Average
Occupancy Room
Twelve months ended: Rate Rate
-----------------------------------------------------------------
September 30, 1996 52.6% $44.49
September 30, 1997 59.8% $45.65
September 30, 1998 50.7% $50.31
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Total
Expenditures Partnership
Total and Debt Cash
Twelve months ended: Revenues Service Flow (1)
---------------------------------------------------------------------------
September 30, 1996 $889,283 $733,042 $156,241
September 30, 1997 $1,032,367 $771,215 $261,152
September 30, 1998 $956,803 $870,836 $85,967
(1) While Partnership Cash Flow as it is used here is not an amount
found in the financial statements, the Managing General Partner believes that it
is the best indicator of the annual change in the amount, if any, available for
distribution to the Limited Partners because it tracks the definition of the
term "Cash Flow" as it is used in the Partnership Agreement. This calculation is
reconciled to the financial statements in the following table. Limited Partners
should not interpret Partnership Cash Flow as an alternative to net income or as
a measure of performance.
Following is a reconciliation of Total expenditures and debt Service as
used above to Total expenses as shown on the Statement of Operations (in the
audited financial statements):
1998 1997 1996
-----------------------------------
Total Expenditures and Debt Service $870,836 $771,215 $733,042
Additions to Fixed Assets (25,784) (43,159) (36,964)
Depreciation and Amortization 87,488 90,581 91,815
Other Items 825 331 (40)
-----------------------------------
Total Expenses $933,365 $818,968 $787,853
===================================
Reconciliation of Partnership Cash Flow (included in the chart above)
to Net Income as shown on the Statements of Operations (in the financial
statements) is as follows:
1998 1997 1996
-----------------------------------
Partnership Cash Flow $85,967 $261,152 $156,241
Additions to Fixed Assets 25,784 43,159 36,964
Depreciation and Amortization (87,488) (90,581) (91,815)
Other Items (825) (331) 40
-----------------------------------
Net Income $23,438 $213,399 $101,430
===================================
During the fiscal year covered by this report as compared to the
previous fiscal year, the Partnership's Santa Rosa motel experienced a $75,564
or 7.3% decrease in total revenues due primarily to the $65,049 or 6.5% decrease
in guest room revenues. The guest room occupancy decreased from 59.8% in the
previous fiscal year to 50.7% during the fiscal year covered by this report. The
occupancy decrease was partially offset by the increase in average room rates
from $45.65 during the previous fiscal year to $50.31 during the current fiscal
year. Revenue and room nights generated by the leisure and the corporate market
segments deceased during the year covered by this report which partially (but
not completely) offset the gains realized during the previous fiscal year. The
decrease in room revenue during the fiscal year covered by this report is
attributed to increased competition and to reduced demand by flood victims.
10
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During the fiscal year ended September 30, 1997 as compared to the
previous fiscal year, the Partnership's Santa Rosa motel achieved an increase in
its guest room revenue through increases in both its average room rate and its
occupancy rate. The occupancy rate increased from 52.6% during the previous
fiscal year to 59.8% for 1997. The average room rate increased from $44.49 to
$45.65. These two increases resulted in the 16.3% increase in guest room
revenue. The Santa Rosa motel achieved its largest increased revenue from the
leisure-market segment with the next largest increase from the corporate
segment.
During the fiscal year covered by this report as compared to the
previous fiscal year, the Partnership's Santa Rosa motel experienced a $99,621
or 12.9% increase in total expenditures. Motel operating costs increased $62,442
or 9.1%. Included in these increased costs are $19,243 for increased wages and
salaries associated with changes in the general manager position and to an
increase in the minimum wage on March 1, 1997, $19,515 for increased maintenance
and renovation costs required by the franchisor, $9,864 for increased allocated
costs which primarily represented increased salaries, $4,955 for increased
property taxes as Santa Rosa was able to recapture some prior valuation
reductions after the excellent year experienced during the previous fiscal year
and $6,984 in rent increases due to the CPI increases.
During the fiscal year ended September 30, 1997 as compared to the
previous fiscal year, the Partnership's Santa Rosa motel experienced a $38,173
or 5.2% increase in total expenditures which is due primarily to the 13.7%
increase in occupancy. The increased expenditures included $14,411 in room
attendant wages, $6,973 in increased franchise royalties and advertising costs
and $7,250 in appraisal costs.
Future Trends
On May 15, 1998, the Partnership and four other limited partnerships
managed by the Managing General Partner entered into a contract to sell all of
their motel assets. Escrow for the sale opened in June 1998. By majority vote
the limited partners of the Partnership and the four other partnerships have
approved the sale pursuant to such contract. The sale of the Partnership's motel
assets and the motel assets of the other limited partnerships are subject to
certain contingencies. Because of these contingencies the Partnership has not
yet reclassified its motel assets as held for sale. If the sale occurs on the
terms approved by the Limited Partners, it is anticipated that the Partnership
would report a gain in the amount of approximately $1,643,000. Accordingly,
there has been no adjustment to the carrying value of the Partnership's motel
assets. If the sale is consummated the Partnership would be liquidated.
The Managing General Partner expects the Partnership's occupancy
percentages (and thus revenues and profitability) to benefit from continued
economic growth in the local and California economies. The Managing General
Partner anticipates lower occupancy rates and perhaps lower room rates in the
event of an economic downturn. The Managing General Partner believes that
competitive conditions in the Santa Rosa market are such as to restrict the
Partnership's ability, in the short run, to increase its room rates to
compensate for inflation.
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Other Financial information
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 at the motel. The Managing General Partner has not investigated and
does not know whether any Year 2000 problem may arise from its third party
vendors. Because the motel is a "budget" motel, 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 motel would
be compromised. No contingency plans have been developed in this regard.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Inapplicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached
hereto at pages F-1 through F-14.
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ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
SUPER 8 MOTELS II, LTD.
SACRAMENTO, CALIFORNIA
SEPTEMBER 30, 1998
F-1
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Item 8: Financial Statements
SUPER 8 MOTELS II, LTD.
INDEX OF FINANCIAL STATEMENTS
Pages
Financial Statements:
Report of Certified Public Accountants F-3
Balance Sheets, September 30, 1998 and 1997 F-4
Statements of Operations for the years ended F-5
September 30, 1998, 1997 and 1996
Statements of Partners' Equity for the years ended F-6
September 30, 1998, 1997 and 1996
Statements of Cash Flows for the years ended F-7 to
September 30, 1998, 1997 and 1996 F-8
Notes to Financial Statements F-9 to
F-14
Note: All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels II, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels II, Ltd., a
California limited partnership, as of September 30, 1998 and 1997 and the
related statements of operations, partners' equity and cash flows for each of
the three years in the period ended September 30, 1998. 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 II, Ltd. as of
September 30, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
December 2, 1998
San Mateo, California
F-3
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1998 and 1997
ASSETS
1998 1997
---------- ----------
Current Assets:
Cash and temporary investments (Notes 1 and 3) $ 303,843 $ 459,098
Accounts receivable 8,161 17,937
Other receivables (Note 9) 15,855 -
Prepaid expenses 22,550 9,017
---------- ----------
Total Current Assets 350,409 486,052
---------- ----------
Property and Equipment (Notes 2 and 7):
Capital improvements 34,947 34,947
Building 1,845,878 1,845,878
Furniture and equipment 538,266 524,159
---------- ----------
2,419,091 2,404,984
Accumulated depreciation and amortization (1,910,714) (1,834,078)
---------- ---------
Property and Equipment, Net 508,377 570,906
---------- ----------
Other Assets (Note 2):
Deposit of federal income tax 22,434 10,818
---------- ----------
Total Assets $ 881,220 $1,067,776
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 105,353 $ 105,071
Due to related parties (Note 4) 3,460 3,735
---------- ----------
Total Liabilities 108,813 108,806
---------- ----------
Contingent Liabilities and Lease Commitment (Notes 4 and 5) - -
Partners' Equity:
Limited Partners; 7,000 units authorized,
issued and outstanding 722,680 909,477
General Partners 49,727 49,493
---------- ----------
Total Partners' Equity 772,407 958,970
---------- ----------
Total Liabilities and Partners' Equity $ 881,220 $1,067,776
========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
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SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended September 30:
---------------------------------
1998 1997 1996
--------- --------- ---------
Income:
Motel room $930,658 $995,707 $856,246
Telephone and vending 11,986 14,913 14,721
Interest 11,617 16,818 17,236
Other 2,541 4,929 1,080
--------- --------- ---------
Total Income 956,802 1,032,367 889,283
--------- --------- ---------
Expenses:
Motel operations (exclusive of depreciation
shown separately below) (Notes 4 and 6) 747,119 684,677 662,519
General and administrative (exclusive of
depreciation shown separately below) (Note 4) 46,386 43,710 33,519
Legal settlement and related legal fees 33,685 - -
Legal fees related to pending sale (Note 9) 18,687 - -
Depreciation and amortization (Note 2) 87,488 90,581 91,815
--------- --------- ---------
Total Expenses 933,365 818,968 787,853
--------- --------- ---------
Net Income $ 23,437 $ 213,399 $ 101,430
========= ========= =========
Net Income Allocable to Limited Partners $23,203 $211,265 $100,416
======== ======== ========
Net Income Allocable to General Partners $234 $2,134 $1,014
======== ======== ========
Net Income Per Partnership Unit (Note 1) $3.31 $30.18 $14.35
======== ======== ========
Distributions to Limited Partners
Per Partnership Unit (Note 1) $30.00 $60.50 $3.00
======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended September 30:
---------------------------------
1998 1997 1996
--------- --------- ---------
Limited Partners:
Balance, beginning of year 909,477 1,121,712 1,042,296
Net income 23,203 211,265 100,416
Distributions to limited partners (210,000) (423,500) (21,000)
--------- --------- ---------
Balance, End of Year 722,680 909,477 1,121,712
--------- --------- ---------
General Partners:
Balance, beginning of year $ 49,493 $ 47,359 $ 46,345
Net income 234 2,134 1,014
--------- --------- ---------
Balance, End of Year 49,727 49,493 47,359
--------- --------- ---------
Total Partners' Equity $772,407 $958,970 $1,169,071
======== ======== =========
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended September 30:
---------------------------------
1998 1997 1996
--------- ---------- ---------
Cash Flows From Operating Activities:
Received from motel operations $939,067 $1,007,202 $880,407
Expended for motel operations and
general and administrative expenses (870,194) (712,901) (679,215)
Interest received 11,656 16,551 17,338
--------- ---------- --------
Net Cash Provided by Operating Activities 80,529 310,852 218,530
--------- ---------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment (25,784) (43,159) (36,984)
Proceeds from sale of equipment - 500 20
--------- ---------- ---------
Net Cash Used by Investing Activities (25,784) (42,659) (36,964)
--------- ---------- ---------
Cash Flows From Financing Activities:
Distributions paid to limited partners (210,000) (423,500) (21,000)
--------- ---------- ---------
Net Cash Used by Financing Activities (210,000) (423,500) (21,000)
--------- ---------- ---------
Net Increase (Decrease) in Cash and
Temporary Investments (155,255) (155,307) 160,566
Cash and Temporary Investments:
Beginning of year 459,098 614,405 453,839
--------- ---------- ---------
End of Year $303,843 $459,098 $614,405
========= ========== =========
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30:
---------------------------------
1998 1997 1996
--------- --------- ---------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $23,437 $213,399 $101,430
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 87,488 90,581 91,815
Loss (gain) on sale of property 825 331 (20)
(Increase) decrease in accounts receivable (6,079) (8,614) 8,462
(Increase) decrease in prepaid expenses (13,533) 12,645 5,641
Increase in other assets (11,616) (7,143) (3,675)
Increase in accounts payable and accrued
liabilities 282 7,658 14,936
Increase (decrease) in due to related parties (275) 1,995 (59)
--------- --------- ---------
Total Adjustments 57,092 97,453 117,100
--------- --------- ---------
Net Cash Provided by
Operating Activities: $80,529 $310,852 $218,530
========= ========= =========
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels II, Ltd., is a limited partnership organized under California law
on May 7, 1979, to acquire and operate motel properties in Santa Rosa and
Ontario, California. The Santa Rosa Motel was opened in November, 1980, and the
Ontario Motel was opened in May, 1981. The Ontario Motel property was sold in
February, 1990. The Partnership grants credit to customers, substantially all of
which are local businesses in Santa Rosa.
The Managing General Partner of the Partnership is Grotewohl Management
Services, Inc., the sole shareholder and officer of which is Philip B.
Grotewohl. The Associate General Partner of the Partnership is Robert J. Dana.
The net income or net loss of the Partnership is allocated 1% to the General
Partners and 99% to the Limited Partners. Net income and distributions per
partnership unit are based upon 7,000 units outstanding. All partnership units
are owned by the Limited Partners.
The Partnership agreement requires that the Partnership maintain reserves for
normal repairs, replacements, working capital and contingencies in an amount of
at least 5% of adjusted capital contributions ($174,716 at September 30, 1998).
As of September 30, 1998, the Partnership had a combined balance in cash and
temporary investments of $303,843.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income are passed through to the individual partners for
income tax purposes, along with any income tax credits. Therefore, no federal or
California income taxes are provided for in the financial statements of the
Partnership. Since the Partnership has a fiscal year-end other than the majority
of the partners, the Partnership is required annually to make a payment to the
Internal Revenue Service based on the prior year's income.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
------------------------- ----------------------- ------------
Capital improvements 200% declining balance 7-20 years
and straight-line
Buildings 150% declining balance 10-25 years
and straight-line
Furniture and equipment 200% declining balance 5-7 years
and straight-line
F-9
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the life of assets are
capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of September 30, 1998 and 1997 consist of the
following:
1998 1997
--------- ---------
Cash in bank, non-interest bearing $ 29,230 $ 22,173
Money market accounts 174,613 336,925
Certificates of deposit 100,000 100,000
--------- ---------
Total Cash and Temporary Investments $ 303,843 $ 459,098
========= =========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments with original maturities of six
months or less to be cash equivalents for purposes of the statement of cash
flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of the motel and
contributes an additional 1% of its gross room revenues to an advertising fund
administered by the franchisor. In return the franchisor provides the right to
use the name "Super 8," a national institutional advertising program, an advance
room reservation system, and inspection services. These costs ($46,547 in 1998,
$49,785 in 1997 and $42,812 in 1996) are included in motel operations expense in
the accompanying statements of operations. The Partnership operates its motel
property as a franchisee of Super 8 Motels, Inc. through a sub-franchise
agreement with Brown & Grotewohl, a California general partnership, of which
Grotewohl Management Services, Inc., (see Note 1) is a 50% owner. Under the
sub-franchise agreement, Brown & Grotewohl earned 40% of the above franchise
fees, which amounted to $18,619, $19,914, and $17,125 in 1998, 1997 and 1996,
respectively.
F-10
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Property Management Fees
The General Partners or their affiliates handle the management of the motel
property of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations, as defined in the Partnership agreement,
not including income from the sale, exchange or refinancing of such properties.
This fee is payable only out of the cash available for distribution of the
Partnership, defined as the total cash receipts from Partnership operations
during a given period of time less cash used during the same period to pay debt
service, capital improvements and replacements, operating expenses and reserves.
It is subordinated to prior receipt by the Limited Partners of a cumulative 10%
per annum pre-tax return on their adjusted capital contributions for each year
of the Partnership's existence. At September 30, 1998 the Limited Partners had
not received the 10% cumulative return, and as no property management fees are
payable, they are not reflected in these financial statements. Management
believes it is not likely that these fees will become payable in the future.
Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partners are to receive
9% of cash available for distribution for Partnership management services, along
with an additional 1% of cash available for distribution on account of their
interest in the income and losses, subordinated, however, to receipt by the
Limited Partners of a cumulative 10% per annum pre-tax return on their adjusted
capital contributions and to payment of the property management fees referred to
above. Since the Limited Partners had not received the 10% cumulative return and
the property management fees had not been paid, no partnership management fees
are presently payable and therefore are not reflected in these financial
statements. Management expects these fees will never be paid. This fee is
payable only from cash funds provided from operations of the Partnership, and
may not be paid from the proceeds of sale or refinancing.
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the net proceeds of the sale of
any of the Partnership's motel properties and of any financing or refinancing of
any of the Partnership's motel properties, to the extent that such proceeds are
not to be reinvested in the acquisition of additional properties, shall promptly
be distributed to the General Partners and Limited Partners. Until the Limited
Partners have received distributions from all sources equal to their capital
contributions plus a cumulative 10% per annum pre-tax return on their adjusted
capital contributions, all of such proceeds shall be distributed to the Limited
Partners. Thereafter, 15% of the remainder of such proceeds shall be distributed
to the General Partners as cash incentive distributions and the balance shall be
distributed to the Limited Partners.
F-11
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the Partnership and
affiliated Super 8 partnerships. These expenses, which are allocated based on
usage, are telephone, data processing, rent of the administrative office,
administrative salaries and duplication expenses. Management believes that the
methods used to allocate shared administrative expenses are reasonable. The
administrative expenses allocated to the Partnership were approximately $123,000
in 1998, $112,000 in 1997 and $113,000 in 1996 and are included in motel
operations expenses and general and administrative expenses in the accompanying
statements of operations. Included in administrative salaries are allocated
amounts paid to two employees who are related to Philip B. Grotewohl, the sole
shareholder of Grotewohl Management Services, Inc., a General Partner of the
Partnerships. One of these employees terminated his employment prior to May
1998.
NOTE 5 - LEASE COMMITMENT
The Partnership has a long-term operating lease commitment on approximately
three acres of land in Santa Rosa, California, the site of the Santa Rosa motel.
The term of the lease runs through August 31, 2015, with an option to extend the
lease for three consecutive periods of five years each. The base monthly rent is
subject to adjustment at three year intervals to reflect changes in the Consumer
Price Index. The Partnership will pay all property taxes, assessments and
utilities. Rent expenses for the fiscal years ending September 30, 1998, 1997
and 1996 were $109,017, $102,033 and $101,354, respectively.
The future lease commitment at September 30, 1998, using the minimum monthly
amounts, is as follows:
Years Ending
September 30: Amount
--------------- ----------
1999 $100,778
2000 100,778
2001 100,778
2002 100,778
2003 100,778
2004-2008 503,888
2009-2013 503,888
2014-2015 193,157
----------
Total $1,704,823
==========
F-12
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the years ended September 30, 1998, 1997 and 1996.
1998 1997 1996
--------- ---------- ----------
Salaries and related costs $230,458 $211,215 $189,103
Rent 101,009 94,025 93,395
Franchise and advertising fees 46,547 49,785 42,812
Utilities 72,327 71,893 74,632
Allocated costs, mainly indirect salaries 100,577 90,713 92,355
Repairs and minor renovations 26,112 17,928 20,987
Maintenance expenses 50,319 38,988 42,313
Property taxes 26,290 21,335 11,413
Property insurance 17,706 18,458 18,028
Other operating expenses 75,774 70,337 77,481
--------- --------- ---------
Total Motel Operating Expenses $747,119 $684,677 $662,519
========= ========= =========
NOTE 7 - PROPERTY AND EQUIPMENT
The following is a summary of the accumulated depreciation and amortization of
property and equipment:
1998 1997
----------- ----------
Capital improvements $ 34,947 $ 34,947
Building 1,414,389 1,353,486
Furniture and equipment 461,378 445,645
---------- ----------
Accumulated depreciation and amortization $1,910,714 $1,834,078
========== ==========
The following is a summary of the federal income tax basis as of September 30,
1998:
Capital improvements $ 34,947
Building 1,740,878
Furniture and equipment 538,266
----------
2,314,091
Less accumulated depreciation and amortization 1,834,239
----------
$ 479,852
==========
F-13
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in six commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
insured and uninsured cash balances (not reduced by outstanding checks) as of
September 30, 1998 follows:
Total cash in all California banks $ 317,307
Less Portion insured by FDIC (291,016)
----------
Uninsured cash balances $ 26,291
==========
NOTE 9 - PENDING SALE OF MOTEL ASSETS
On May 15, 1998 the Partnership and four other limited partnerships managed by
the general partner entered into a contract to sell all their motel assets.
Escrow for the sale opened in June 1998. By majority vote the limited partners
of the Partnership have approved the sale of the Partnership's motel assets
pursuant to such contract, and the limited partners of the four other limited
partnerships have also approved by majority vote the sale of their respective
limited partnership's motel assets. The sale of the Partnership's motel assets
and the motel assets of the other limited partnerships are subject to certain
contingencies. Because of these contingencies the Partnership has not yet
reclassified its motel assets as held for sale. If the sale occurs on the terms
approved by the limited partners, it is anticipated that the Partnership would
report a gain per books in the amount of approximately $1,690,000. Accordingly,
there has been no adjustment to the carrying value of the Partnership's motel
assets. If the sale is consummated the Partnership would be liquidated.
In connection with the anticipated sale of the motel assets, the Partnership has
incurred reimbursable costs in the amount of $15,855 which are included as other
receivables in the accompanying balance sheet.
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash and temporary investments, accounts receivable,
other receivables, and accounts payable in the balance sheet approximates fair
values.
F-14
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The original general partners of the Partnership were Dennis A. Brown,
Philip B. Grotewohl and Robert J. Dana. Upon Mr. Brown's death on February 25,
1988, Mr. Grotewohl and Mr. Dana elected to continue the Partnership. During
March 1988, Mr. Grotewohl appointed Grotewohl Management Services, Inc., a
California corporation 50% of which is owned by Mr. Grotewohl, his successor as
Managing General Partner of the Partnership. Mr. Dana continues to be a General
Partner of the Partnership.
The Managing General Partner was organized in 1981 to serve as a
general partner of limited partnerships to be formed for the purpose of
investing in Super 8 Motels.
Mr. Grotewohl, age 80, was an attorney-at-law and was engaged in the
private practice of law in San Mateo County, California, between 1967 and 1978.
Since 1978, Mr. Grotewohl's principal occupation has been as a promoter and
general partner of Super 8 Motel limited partnerships.
Mr. Dana, age 70, was a registered representative of Brown, Brosche
Securities, Inc. between 1982 and 1988. Between 1976 and 1982 he served as a
registered representative of several stock and investment brokers. Mr. Dana
has also served as marketing consultant for various real estate limited
partnership and other direct participation investment programs.
Item 11. EXECUTIVE COMPENSATION
The following discussion contains certain information regarding
aggregate direct or indirect compensation paid by the Partnership during the
fiscal year ended September 30, 1998 or payable to the General Partners and the
Estate of Dennis A Brown as a group. Although Mr. Brown ceased to be a general
partner of the Partnership upon his death, his estate shares in certain
compensation otherwise payable to the General Partners and their affiliates.
Property Management Fees
The Manager is managing and will manage the Partnership's motel
pursuant to an agreement between the Partnership and Super 8 Management
Corporation, a corporation which was wholly-owned by Dennis A. Brown and Philip
B. Grotewohl. In March 1988 the management contract between the Partnership and
Super 8 Management Corporation was assigned to the Manager, which is a
California general partnership between the Estate of Dennis A Brown and the
Managing General Partner. The fee for this service is 5% of the gross proceeds
from the operations of the motel. This fee is payable only out of the
operational cash flow of the Partnership, and is subordinated to the prior
receipt by the Limited Partners of a cumulative 10% per annum return on their
Adjusted Capital Contributions. This compensation is in addition to the cost of
goods and services acquired for the Partnership from independent contractors.
13
<PAGE>
As a result of the sale of the Ontario motel in February 1990, the
General Partners waived their claim to accrued management fees as the receipt
thereof became extremely remote. No property management fees have been accrued
since the Ontario motel sale due to the unlikelihood that they would ever be
paid to the General Partners. Before the General Partners can receive any
property management fees, the Limited Partners must receive preferential
distributions of $3,457,214 to meet the subordination requirement calculated
through September 30,1998, plus $349,432 per each year thereafter.
Franchise Fees and Advertising Fees
Super 8 Motels, Inc. is the franchisor of all Super 8 Motels. The
Partnership operates its motel as a franchisee of Super 8 Motels, Inc., through
sub-franchises obtained from Super 8 Management Corporation. The original
sub-franchise agreement between Super 8 Motels, Inc. and Super 8 Management
Corporation was transferred to the Manager in March 1988. The Partnership, as
franchisee, pays to the franchisor monthly franchise fees equal to 4% of its
gross room revenue and contributes 1% of its gross room revenue to an
advertising fund administered by the franchisor to finance institutional
advertising. The Manager is entitled to one-half of the franchise fees.
The total of franchise fees accrued during the fiscal year covered by
this report was $37,238 (of which $18,619 accrued to the Manager). All of the
above sums have been paid.
General Partners' Interest in Cash Available for Distribution
At quarterly intervals, the total amount of the Partnership's Cash
Available for Distribution is determined at the discretion of the Managing
General Partner. (See Item 5 above.) Distributions therefrom are made as
follows: (1) 90% of such distributions is paid to the Limited Partners; (2) 9%
thereof is paid to the General Partners as Partnership management fees; and (3)
1% thereof is paid to the General Partners in accordance with their interest in
the income and losses of the Partnership.
Notwithstanding the foregoing, however, distributions of Cash Available
for Distribution to the General Partners are deferred and paid only after
payment to the Limited Partners of distributions of Cash Available for
Distribution in an amount equal to 10% per annum cumulative on their Adjusted
Capital Contributions. During the fiscal year covered by this report, no amounts
were deferred for the General Partners' share of distributions of Cash Available
for Distribution. A total of $742,534 has been deferred since commencement of
the Partnership. As discussed in the section captioned "Property Management
Fees" above, the payment of these fees is unlikely due to the large preferential
distribution unpaid to the Limited Partners.
14
<PAGE>
General Partners' Interest in Net Proceeds of Sales and
Financing of Partnership Properties
Net proceeds of the sale of the Partnership's motel property and of any
financing or refinancing thereof (to the extent that the proceeds of any such
financing or refinancing are not to be reinvested in the acquisition of
additional properties) will be promptly distributed. Such distributions will be
paid as follows: (1) until the Limited Partners have received distributions from
all sources equal to 100% of their capital contributions plus 10% per annum
cumulative on their Adjusted Capital Contributions, all of such proceeds will be
distributed to the Limited Partners; (2) thereafter, 15% of the balance of such
proceeds will be distributed to the General Partners as cash incentive
distributions and the remaining 85% thereof will be distributed to the Limited
Partners. No distributions have been paid to or accrued for the benefit of the
General Partners.
Allocation of Compensation
Compensation to the General Partners and their affiliates is allocated
as follows:
(1) Mr. Dana receives annual amounts from the General Partners'
compensation from the Partnership so that his cumulative additional compensation
from year to year is equal to the greater of 25% of the General Partners'
cumulative share of Cash Available for Distribution and sale or refinancing
proceeds or 25% of the cumulative property management fees received by the
General Partners (reduced by all Partnership-related business expenses of the
General Partners).
(2) All compensation to the General Partners which is not allocated to Mr.
Dana is divided equally between Grotewohl Management Services, Inc. and the
Estate of Dennis A. Brown.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
AMOUNT AND
TITLE NATURE OF
OF BENEFICIAL PERCENT
CLASS NAME OF BENEFICIAL OWNER OWNERSHIPT OF CLASS
---------- -------------------------------- ---------------- -----------
Units Everest Lodging Investor, LLC 541 Units 7.73%
Units Everest Madison Investors, LLC 343 Units 4.90%
---------
TOTAL 884 Units 12.63%
=========
No person is known by the Partnership to be the beneficial owner of more
than 5% of the Units.
Security Ownership of Management
The General Partners do not beneficially own any Units.
15
<PAGE>
Changes in Control
With the consent of all other General Partners and Limited Partners
holding more than 50% of the Units, a General Partner may designate a successor
or additional general partner, in each case with such participation in such
General Partner's interest as such General Partner and successor or additional
general partner may agree upon, provided that the interests of the Limited
Partners are not affected thereby.
A General Partner may withdraw from the Partnership at any time upon 60
days' prior written notice to the Limited Partners and any other General
Partners, or may transfer his interest to an entity controlled by him; provided,
however, that in either such event, if it is determined that the Partnership
business is to be continued rather than dissolved and liquidated upon the
happening thereof, the withdrawal or transfer will be effective only after
receipt by the Partnership of an opinion of counsel to the effect that such
withdrawal or transfer will not cause the Partnership to be classified as an
association taxable as a corporation rather than as a partnership for federal
income tax purposes.
The Limited Partners shall take no part in the management of the
Partnership's business; however, a majority in interest of the Limited Partners,
without the concurrence of the General Partners, shall have the right to amend
the Partnership Agreement, dissolve the Partnership, remove a General Partner or
any successor general partner, elect a new general partner or general partners
upon the removal, retirement, death, insanity, insolvency or bankruptcy of a
General Partner, and approve or disapprove the sale, exchange or pledge in a
single transaction of all or substantially all of the properties acquired by the
Partnership.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the
Partnership and affiliated Super 8 partnerships. These expenses, which are
allocated based on usage, are telephone, data processing, rent of administrative
offices and administrative salaries. The administrative expenses allocated to
the Partnership were approximately $123,000 in the fiscal year ended September
30, 1998 and are included in general and administrative expenses and motel and
restaurant operations expenses in the Partnership's financial statements.
Included in administrative salaries are allocated amounts paid to two employees
who are related to Philip B. Grotewohl, a 50% shareholder of the Managing
General Partner.
16
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements Included in Part II of this Report
Report of Independent Certified Public Accountants
Balance Sheets, September 30, 1998 and 1997 Statements of Operations for
the Years Ended September 30,
1998, 1997 and 1996
Statements of Partners' Equity for the Years Ended September 30,
1998, 1997 and 1996
Statements of Cash Flows for the Years Ended September 30,
1998, 1997 and 1996
Notes to Financial Statements
2. Financial Statement Schedules Included in Part IV of the Report
None
3. Exhibits
3. and 4. The Partnership Agreement is incorporated herein as an exhibit
from the annual report on Form 10-K for the fiscal year ended September
30, 1984 (File No. 0-9218).
10.1 Ground lease pertaining to the Partnership's Santa Rosa, California
property filed as Exhibit 10.1 to the annual report on Form 10-K for the
fiscal year ended September 30, 1982 (File No. 0-9218) is hereby
incorporated herein as an exhibit.
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
(Registrant) SUPER 8 MOTELS II, LTD.
By (Signature and Title) /s/ Philip B. Grotewohl
--------------------------------
Philip B. Grotewohl,
Chairman of Grotewohl Management
Services, Inc.,
Managing General Partner
Date December 22, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title) /s/ Philip B. Grotewohl
--------------------------------
Philip B. Grotewohl, Chief
executive officer, chief financial
officer, chief accounting officer
and sole director of Grotewohl
Management Services, Inc., Managing
General Partner
Date December 22, 1998
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 303,843
<SECURITIES> 0
<RECEIVABLES> 24,016
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 350,409
<PP&E> 2,419,091
<DEPRECIATION> 1,910,714
<TOTAL-ASSETS> 881,220
<CURRENT-LIABILITIES> 108,813
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 772,407
<TOTAL-LIABILITY-AND-EQUITY> 881,220
<SALES> 942,644
<TOTAL-REVENUES> 956,802
<CGS> 747,119
<TOTAL-COSTS> 747,119
<OTHER-EXPENSES> 186,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,437
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,437
<EPS-PRIMARY> 3.31
<EPS-DILUTED> 3.31
</TABLE>
