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 0-10134
SUPER 8 MOTELS III, LTD
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2664921
- - ------------------------------- -------------------
(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 __
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SUPER 8 MOTELS III, 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 - 10
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
<PAGE>
Super 8 Motels III, 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 $ 383,080 $ 362,215
Accounts receivable 84,188 100,184
Prepaid expenses 17,214 9,229
----------- -----------
Total current assets 484,482 471,628
----------- -----------
Property and Equipment:
Land 1,670,129 1,670,129
Capital improvements 26,175 26,175
Buildings 3,276,870 3,276,870
Furniture and equipment 804,870 782,439
----------- -----------
5,778,044 5,755,613
Accumulated depreciation (3,075,301) (2,968,172)
----------- -----------
Property and equipment, net 2,702,743 2,787,441
----------- -----------
Total Assets $ 3,187,225 $ 3,259,069
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 103,611 116,417
----------- -----------
Total current liabilities 103,611 116,417
----------- -----------
Total liabilities 103,611 116,417
----------- -----------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 22,014 20,376
Limited Partners (12,900 units authorized,
5,941 units issued and outstanding) 3,061,600 3,122,276
----------- -----------
Total partners' equity 3,083,614 3,142,652
----------- -----------
Total Liabilities and Partners' Equity $ 3,187,225 $ 3,259,069
=========== ===========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels III, 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 $ 416,090 $ 1,230,379 $ 407,133 $ 1,236,746
Telephone and vending 8,055 21,381 9,360 25,704
Interest 2,528 8,211 2,964 6,753
Other 6,946 9,411 821 5,783
---------- ---------- ---------- ----------
Total Income 433,619 1,269,382 420,278 1,274,986
---------- ---------- ---------- ----------
Expenses:
Motel operating expenses
(Note 2) 335,329 895,786 307,710 877,176
General and administrative 19,177 39,977 11,646 44,273
Depreciation and amortization 35,715 107,129 37,245 114,487
Property management fees 21,270 62,740 20,866 63,257
---------- ---------- ---------- ----------
Total Expenses 411,491 1,105,632 377,467 1,099,193
---------- ---------- ---------- ----------
Net Income (Loss) $ 22,128 $ 163,750 $ 42,811 $ 175,793
========== ========== ========== ==========
Net Income (Loss) Allocable
to General Partners $221 $1,638 $428 $1,758
========== ========== ========== ==========
Net Income (Loss) Allocable
to Limited Partners $21,907 $162,112 $42,383 $174,035
========== ========== ========== ==========
Net Income (Loss)
per Partnership Unit $3.69 $27.29 $7.13 $29.29
========== ========== ========== ==========
Distribution to Limited Partners
per Partnership Unit $12.50 $37.50 $12.50 $12.50
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
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Super 8 Motels III, Ltd.
(A California Limited Partnership)
Statement of Partners' Equity
For the Nine Months Ending September 30, 1998 and 1997
1998 1997
---------- ----------
General Partners:
Balance at beginning of year $ 20,376 $ 19,205
Net income (loss) 1,638 1,758
---------- ----------
Balance at end of period 22,014 20,963
---------- ----------
Limited Partners:
Balance at beginning of year 3,122,276 3,154,879
Net income (loss) 162,112 174,035
Less: Cash distributions (222,788) (74,263)
---------- ----------
Balance at end of period 3,061,600 3,254,651
---------- ----------
Total balance at end of period $ 3,083,614 $ 3,275,614
========== ==========
The accompanying notes are an integral part of the financial statements.
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Super 8 Motels III, 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 $ 1,277,167 $ 1,241,612
Expended for motel operations
and general and administrative expenses (1,019,294) (965,972)
Interest received 8,211 6,753
---------- ----------
Net cash provided (used) by operating activities 266,084 282,393
---------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (22,431) (28,563)
Proceeds from sale of equipment - 120
---------- ----------
Net cash provided (used) by investing activities (22,431) (28,443)
---------- ----------
Cash Flows From Financing Activities:
Distributions paid to Limited Partners (222,788) (74,263)
---------- ----------
Net cash provided (used) by financing activities (222,788) (74,263)
---------- ----------
Net increase (decrease) in cash
and temporary investments 20,865 179,687
Cash and temporary investments:
Beginning of year 362,215 254,782
---------- ----------
End of period $ 383,080 $ 434,469
========== ==========
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net income (loss) $ 163,750 $ 175,793
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 107,129 114,487
Gain on disposition of property - (120)
(Increase) decrease in accounts receivable 15,996 (26,621)
(Increase) decrease in prepaid expenses (7,985) (6,595)
Increase (decrease) in accounts payable
and accrued liabilities (12,806) 25,449
---------- ----------
Total adjustments 102,334 106,600
---------- ----------
Net cash provided by operating activities $ 266,084 $ 282,393
========== ==========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
Super 8 Motels III, Ltd.
(A California Limited Partnership)
Notes to Financial Statements
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 $62,740
Franchise Fees $24,608
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 $ 116,000 $ 348,468 $ 116,033 $ 342,723
Franchise and advertising 20,804 61,519 20,357 61,837
Utilities 40,802 84,801 38,135 87,993
Allocated costs,
mainly indirect salaries 49,964 147,481 43,878 132,302
Maintenance, repairs &
replacements 46,852 83,816 30,422 79,614
Property taxes 14,549 43,341 14,663 43,609
Property insurance 7,777 23,873 7,181 25,249
Other operating expenses 38,581 102,487 37,041 103,849
---------- ---------- ---------- ----------
Total motel operating
expenses $ 335,329 $ 895,786 $ 307,710 $ 877,176
========== ========== ========== ==========
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 III, 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's current assets of $484,482 exceed its current
liabilities of $103,611 by $380,871. This excess of current assets over current
liabilities constitutes an operating reserve that is greater than the $297,050
operating reserve requirement in the Partnership Agreement.
The Partnership has no major commitments for capital expenditures.
During the nine months ended September 30, 1998, the Partnership expended
$66,103 in such expenditures which is equal to 5.4% of guest room revenue.
Included in that amount was $17,320 for replacement guest room carpets, $18,917
in roof repairs, $5,264 for pool repairs and $4,341 for replacement lamps.
RESULTS OF OPERATIONS
The following is a comparison of the first nine months of the fiscal
year ending December 31, 1998 with the corresponding period of the preceding
fiscal year.
Total revenues decreased $5,604 (or 0.4%) for the nine month period as
compared to the previous fiscal year. The decrease in total revenue was due to a
$6,367 (or 0.5%) decrease in room revenue. Motel occupancy decreased slightly
from 72.1% in 1997 to 71.8% in 1998 and the average room rate decreased from
$36.73 in 1997 to $36.68 in 1998. The decrease was due to a reduction in the
corporate business market segment at the San Bernardino motel.
The Partnership's expenses increased by $6,439 or 0.6%. Minimum wage
requirements were the cause of the salaries and wages cost increases. Repairs
and maintenance expenses increased due to the requirements for meeting the Super
8 inspection program requirements. Allocated expenses increased due to
additional legal expenses related to the proposed sale of the motels.
FUTURE TRENDS
The General Partners expect that overall occupancy for the fiscal year
ending December 31, 1998 will be no greater or the same as that achieved in
1997. The General Partners expect income for the current fiscal year to be no
greater than the previous fiscal year. Expenses are subject to both cost
inflation and to the deferred maintenance associated with the effects of high
occupancy in previous years. The net effect should be net income equal to or
slightly less than the previous fiscal year result.
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.
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<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SEPTEMBER 30, 1998 (Continued)
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.
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<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, Ltd., Super 8 Motels II, 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
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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, III 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
<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> 383,080
<SECURITIES> 0
<RECEIVABLES> 84,188
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 484,482
<PP&E> 5,778,044
<DEPRECIATION> 3,075,301
<TOTAL-ASSETS> 3,187,225
<CURRENT-LIABILITIES> 103,611
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,083,614
<TOTAL-LIABILITY-AND-EQUITY> 3,187,225
<SALES> 1,251,760
<TOTAL-REVENUES> 1,269,382
<CGS> 895,786
<TOTAL-COSTS> 895,786
<OTHER-EXPENSES> 209,846
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 163,750
<INCOME-TAX> 0
<INCOME-CONTINUING> 163,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,750
<EPS-PRIMARY> 27.29
<EPS-DILUTED> 27.29
</TABLE>
