SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
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For the Period ended December 31, 1997
Commission File 0-9218
SUPER 8 MOTELS II, LTD
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(Exact name of registrant as specified in its charter
CALIFORNIA 94 - 2574309
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 J Street
Sacramento, California 95814
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Address of principal 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
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<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
INDEX
Financial Statements: PAGE
Balance Sheet - December 31, 1997 and September 30, 1997 2
Statement of Operations - Three Months Ended
December 31, 1997 and 1996 3
Statement of Changes in Partners' Equity -
Three Months Ended December 31, 1997 and 1996 4
Statement of Cash Flows - Three Months Ended
December 31, 1997 and 1996 5
Notes to Financial Statements 6
Management Discussion and Analysis 7 - 8
Other Information and Signatures 9 - 11
<PAGE>
Super 8 Motels II, Ltd.
(A California Limited Partnership)
Balance Sheet
December 31, 1997 and September 30, 1997
12/31/97 9/30/97
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ASSETS
Current Assets:
Cash and temporary investments $ 352,861 $ 459,098
Accounts receivable 9,530 17,937
Prepaid expenses 13,680 9,017
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Total current assets 376,071 486,052
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Property and Equipment:
Capital improvements 34,947 34,947
Buildings 1,845,878 1,845,878
Furniture and equipment 526,802 524,159
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2,407,627 2,404,984
Accumulated depreciation (1,852,736) (1,834,078)
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Property and equipment, net 554,891 570,906
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Other Assets: 10,818 10,818
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Total Assets $ 941,780 $ 1,067,776
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LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 72,929 $ 108,806
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Total current liabilities 72,929 108,806
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Total liabilities 72,929 108,806
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Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 49,117 49,493
Limited Partners 819,734 909,477
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Total partners' equity 868,851 958,970
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Total Liabilities and Partners' Equity $ 941,780 $ 1,067,776
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The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels II, Ltd.
(A California Limited Partnership)
Statement of Operations
For the Three Months Ending December 31, 1997 and 1996
Three Months Three Months
Ended Ended
12/31/97 12/31/96
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Income:
Guest room $ 200,933 $ 204,863
Telephone and vending 3,243 4,240
Interest 3,909 5,500
Other 492 524
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Total Income 208,577 215,127
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Expenses:
Motel operating expenses (Note 2) 191,743 158,523
General and administrative 32,872 26,189
Depreciation and amortization 21,581 22,156
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Total Expenses 246,196 206,868
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Net Income (Loss) $ (37,619) $ 8,259
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Net Income (Loss) Allocable
to General Partners ($376) $83
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Net Income (Loss) Allocable
to Limited Partners ($37,243) $8,176
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Net Income (Loss)
per Partnership Unit ($5.32) $1.17
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Distribution to Limited Partners
per Partnership Unit $7.50 $3.00
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The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels II, Ltd.
(A California Limited Partnership)
Statement of Partners' Equity
For the Three Months Ended December 31, 1997 and 1996
12/31/97 12/31/96
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General Partners:
Balance, beginning of year $ 49,493 $ 47,359
Net income (loss) (376) 83
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Balance, End of period 49,117 47,442
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Limited Partners:
Balance, beginning of year 909,477 1,121,712
Net income (loss) (37,243) 8,176
Distributions to Limited Partners (52,500) (21,000)
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Balance, End of Period 819,734 1,108,888
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Total Partners' Equity $ 868,851 $ 1,156,330
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The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels II, Ltd.
(A California Limited Partnership)
Statement of Cash Flows
For the Three Months Ended December 31, 1997 and 1996
12/31/97 12/31/96
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Cash Flows from Operating Activities:
Received from motel revenues $ 211,744 $ 207,939
Expended for motel operations and
general and administrative expenses (264,330) (197,524)
Interest received 5,240 6,645
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Net Cash Provided (Used) by Operating Activities (47,346) 17,060
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Cash Flows from Investing Activities:
Purchases of property and equipment (6,391) (5,242)
Proceeds from sale of land - 500
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Net Cash Provided (Used) by Investing Activities (6,391) (4,742)
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Cash Flows from Financing Activities:
Distributions to limited partners (52,500) (21,000)
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Net Cash Provided (Used) by Financing Activities (52,500) (21,000)
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Net Increase (Decrease) in Cash and
Temporary Investments (106,237) (8,682)
Cash and Temporary Investments:
Beginning of period 459,098 614,405
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End of period $ 352,861 $ 605,723
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Reconciliation of Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Net Income (Loss) $ (37,619) $ 8,259
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Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 21,581 22,156
(Gain) loss on disposition of property and
equipment 825 (500)
(Increase) decrease in accounts receivable 8,407 (543)
(Increase) decrease in prepaid expenses (4,663) 7,730
Increase (decrease) in accounts payable (35,877) (20,042)
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Total Adjustments (9,727) 8,801
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Net Cash Provided (Used) by Operating
Activities $ (47,346) $ 17,060
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The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels II, Ltd.
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1997 and 1996
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 September 30, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid to the General Partners or affiliates for the
period.
Franchise Fees $ 4,024
Upon the sale of the Ontario Motel property in February, 1990, management felt
that the payment of the property management fees and partnership management fees
became remote. Therefore, no property management fees or partnership management
fees have been accrued.
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods reported:
Three Months Three Months
Ended Ended
12/31/97 12/31/96
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Salaries and related costs $ 55,715 $ 48,750
Rent 25,194 23,349
Franchise and advertising fees 10,061 10,257
Utilities 17,469 16,663
Allocated costs,
mainly indirect salaries 26,837 24,547
Replacements and renovations 11,111 3,740
Other operating expenses 45,356 31,217
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Total motel operating expenses $ 191,743 $ 158,523
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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 II, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
DECEMBER 31, 1997
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Partnership's current assets of $376,071
exceeded its current liabilities of $72,929 thereby providing an operating
reserve of $303,142. The Partnership experienced a negative cash flow of
$106,237 for the three month period ended December 31, 1997, as compared to a
negative cash flow of $8,682 during the corresponding period of the previous
fiscal year.
The Partnership's operating reserve of $303,142 exceeds the General
Partners' reserve target of $174,716. The General Partners plan to continue to
pay quarterly distributions of $7.50 per unit.
The Partnership has equity in its Santa Rosa motel that could provide
security for a loan against the property. Annual cash flow for the Santa Rosa
property in recent years has been such that it would support a modest loan.
The Partnership has no material commitments for capital expenditures.
Expenditures for replacements and renovations during the first three months of
the fiscal year which will end on September 30, 1998 were $17,502 or 8.7% of
room revenues. Non-capitalized expenses included $7,995 for exterior painting of
the Santa Rosa motel and $3,116 for beds, chairs and lamps.
Capitalized expenditures consisted of $6,391 for guest room carpet.
RESULTS OF OPERATIONS
The following is a comparison of operating results for the three month
periods ended December 31, 1997 and December 31,
1996.
Total revenues decreased $6,550 or 3.0%. Guest room revenue decreased
$3,930 or 1.9% due to a decrease in the occupancy rate from 54.1% to 46.49%.
This decrease was offset by an increase in the average room rate from $41.13 to
$47.09.
Total expenses for the three month period ended December 31, 1997
increased $39,330 (or 19.0%) from those incurred in the corresponding period of
the previous fiscal year. Included in this increase is an $11,123 increase in
legal fees associated with a lawsuit filed against the Partnership and a $7,371
increase in renovations. Additional increases in expenses can be attributed
on-site management changes and to federal and state mandated increases in the
minimum wage over the last year.
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<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
DECEMBER 31, 1997 (CONTINUED)
FUTURE TRENDS
The Santa Rosa lodging market continues to recover from the poor
performances of previous years. While the corporate and leisure market segments
have contracted for the three months of this year as compared to the
corresponding period of the previous fiscal year, the discount segment has
expanded by a similar amount with only a slight decrease in revenues as a
result. The General Partners expect to keep operating expenses under control and
to return to profitability by the fiscal year-end.
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.
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<PAGE>
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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On October 27, 1997 a complaint was filed in the United States District
Court, Eastern District of California by the registrant, Grotewohl Management
Services, Inc. (a general partner of the registrant) and four other limited
partnerships (together with the registrant, the "Partnerships") as to which
Grotewohl Management Services, Inc. serves as general partner (i.e., Super 8
Motels, Ltd., Super 8 Motels III, Ltd., Super 8 Economy Lodging IV, Ltd., and
Famous Host Lodging V, L.P.), as plaintiffs. The complaint names 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 B. Enquist. The factual basis underlying the plaintiffs'
causes of actions pertains 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 requests the following relief: (i) a declaration
that each of the defendants has 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 have 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. The
plaintiffs have not yet received an answer of the defendants respecting the
complaint.
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<PAGE>
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 pertains
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 Partnership's partnership
agreement and California law. The complaint requests the following relief: (i) a
declaration that the action is 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. The defendants and nominal defendants have recently
been served and are formulating their response to the complaint.
Item 2. Changes in Securities
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None
Item 3. Defaults upon Senior Securities
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None
Item 4. Submission of Matters to Vote of Security Holders
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None
Item 5. Other Information
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See Notes to Financial Statements
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
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<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 II, LTD
2-12-98 By /S/ David P. Grotewohl
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Date David P. Grotewohl,
President of Grotewohl
Management Services, Inc.,
Managing General Partner
2-12-98 By /S/ David P. Grotewohl
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Date David P. Grotewohl,
Chief Financial Officer
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 352,861
<SECURITIES> 0
<RECEIVABLES> 9,530
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 376,071
<PP&E> 2,407,627
<DEPRECIATION> 1,852,736
<TOTAL-ASSETS> 941,780
<CURRENT-LIABILITIES> 72,929
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 868,851
<TOTAL-LIABILITY-AND-EQUITY> 941,780
<SALES> 204,176
<TOTAL-REVENUES> 208,577
<CGS> 191,743
<TOTAL-COSTS> 191,743
<OTHER-EXPENSES> 54,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (37,619)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,619)
<EPS-PRIMARY> (5.32)
<EPS-DILUTED> (5.32)
</TABLE>
