10-Q 1 d10q.txt FORM 10-Q ================================================================================ Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 15, 2001 Commission File No. 0-16728 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP 10400 Fernwood Road Bethesda, MD 20817-1109 (301) 380-9000 Delaware 52-1533559 --------------------- ------------------------------------- (State of Organization) (I.R.S. Employer Identification Number) Securities registered pursuant to Section 12(b) of the Act: Not Applicable 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____. --- ================================================================================ ================================================================================ Courtyard by Marriott II Limited Partnership ================================================================================ TABLE OF CONTENTS -----------------

~~March~~Page ~~23,~~No. ~~December 31, 2001 2000~~ --------~~---~~ PART I -~~-----------~~ FINANCIAL INFORMATION (Unaudited) ~~ASSETS~~Condensed ~~Property~~Consolidated ~~and~~Balance ~~equipment,~~Sheets ~~net................................~~June ~~$433~~15,~~461~~ ~~$439,098~~2001 ~~Deferred~~and ~~financing~~December ~~costs~~31, ~~net of accumulated amortization~~2000.. ~~10,822 11,119 Due from Courtyard Management Corporation~~.................. ~~11,306 8,453 Other assets~~........................................~~.......~~ 81 2Condensed ~~Property~~Consolidated ~~improvement~~Statements ~~fund..................................~~of ~~23,267~~Operations 18Twelve and Twenty-Four Weeks Ended June 15,~~912~~ ~~Restricted~~2001 ~~cash~~and June 16, 2000.............................~~...............~~ ~~26,986~~2 ~~18,415~~Condensed Consolidated Statements of Cash Flows Twenty-Four Weeks Ended June 15, 2001 and ~~cash~~June ~~equivalents~~16, 2000........................................ ~~1,046~~3 ~~13,511~~Notes ~~--------~~to ~~--------~~Condensed ~~$506,896~~Consolidated ~~$509,510~~Financial ~~======== ======== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) LIABILITIES Debt~~Statements.............................................~~........~~ ~~$463,642~~4 ~~$466,539~~ Management's ~~fees~~Discussion ~~due~~and toAnalysis ~~Courtyard~~of ~~Management~~Financial ~~Corporation..~~Condition ~~34,189~~and ~~31,417~~Results ~~Due~~of ~~to Marriott International, Inc~~Operations. ~~and affiliates~~....... ~~8,666 8,693 Accounts payable and accrued liabilities~~................. ~~10,704 12,106 -------- -------- Total Liabilities~~.................................... ~~517,201~~5 ~~518,755~~Quantitative ~~--------~~and ~~--------~~Qualitative ~~PARTNERS'~~Disclosures ~~CAPITAL~~about ~~(DEFICIT)~~Market ~~General Partner~~Risk.......................................~~...~~ ~~9,304~~7 ~~9,409~~PART ~~Limited~~II ~~Partners~~- OTHER INFORMATION Legal Proceedings......................................... ~~(19,609) (18,654) -------- -------- Total Partners' Deficit~~....................................... ~~(10,305) (9,245) -------- -------- $506,896 $509,510 ======== ========~~7

Courtyard by Marriott II Limited Partnership Condensed Consolidated Balance Sheets (in thousands)

~~Twelve~~June ~~Weeks Ended March 23~~15, ~~March~~December 2431, 2001 2000 ----------- ----------- ~~REVENUES~~(Unaudited) ~~Hotel~~ASSETS ~~revenues~~Property ~~Rooms~~and equipment, net..............................~~..............~~ $63427,~~450~~855 $439,098 61Deferred financing costs,~~453~~ ~~Food~~net ~~and~~of ~~beverage~~accumulated amortization................................ ~~3,960 4,092 Other~~........... 10,391 11,119 Due from Courtyard Management Corporation................ 6,439 8,453 Other assets................. ~~1,966 2,472 ------- -------- Total hotel revenues~~............................ ~~69,376~~13 ~~68,017~~2 ~~-------~~Property ~~--------~~improvement ~~OPERATING COSTS AND EXPENSES Hotel property-level costs and expenses Rooms~~fund................................ 26,841 18,912 Restricted cash............ ~~13,999 13,796 Food and beverage~~................................ 328,~~578~~301 318,~~559~~415 ~~Other~~Cash ~~department costs~~ and ~~expenses~~cash equivalents.............. ~~450 960 Selling, administrative and other~~.................. 167,~~792~~022 1513,~~736~~511 -------- -------- ~~Total~~$506,862 ~~hotel~~$509,510 ~~property-level~~======== ~~costs~~======== ~~and~~LIABILITIES ~~expenses...~~AND ~~34,819~~PARTNERS' ~~34,051~~CAPITAL ~~Depreciation~~(DEFICIT) LIABILITIES Debt...................................... ~~6,515 6,647 Ground rent, taxes and other~~...............~~.......~~ 6$459,~~586~~229 6$466,~~716~~539 ~~Base~~Management ~~and~~fees due to Courtyard ~~management~~Management ~~fees~~Corporation..~~..............~~ 435,~~163~~568 431,~~081~~417 ~~Incentive~~Due ~~management~~to ~~fee~~Marriott International, Inc. and affiliates.......~~..................~~ 28,~~954~~638 38,~~133~~693 ~~-------~~Accounts ~~--------~~payable ~~Total operating costs~~ and ~~expenses~~accrued liabilities................. 5511,~~037~~209 5412,~~628~~106 -------- -------- ~~OPERATING~~Total ~~PROFIT~~Liabilities................................... ~~14,339 13,389 Interest expense~~.~~.................................~~ (9514,~~526)~~644 ~~(10~~518,~~005)~~755 ~~Interest income................................... 331 321~~ -------- -------- ~~NET~~PARTNERS' ~~INCOME~~CAPITAL (DEFICIT) General Partner.......................................... ~~$ 5~~9,~~144~~482 ~~$ 3~~9,~~705~~409 ~~=======~~Limited ~~======== ALLOCATION OF NET INCOME General Partner~~Partners......................................... $(17,264) ~~257~~(18,654) $-------- ~~185~~-------- ~~Limited~~Total Partners' Deficit..............................~~....~~ 4(7,~~887~~782) 3(9,~~520~~245) -------- -------- $ 5506,~~144~~862 $ 3509,~~705~~510 ======= =~~=======~~ ~~NET INCOME PER LIMITED PARTNER UNIT (1,470 Units).. $ 3,324 $ 2,395~~ ======= =~~=======~~

See Notes to Condensed Consolidated Financial Statements. 1 Courtyard by Marriott II Limited Partnership Condensed Consolidated Statements of Operations (Unaudited, in thousands, except Unit and Per Unit Amounts)

Twelve Weeks Ended ~~March~~Twenty-Four 23Weeks Ended June 15, ~~March~~June 2416, June 15, June 16, 2001 2000 2001 2000 ------- ------- -------- -------- ~~OPERATING~~REVENUES ~~ACTIVITIES~~Hotel ~~Net~~revenues ~~income~~Rooms............................................ $65,040 5$66,~~144~~408 $128,490 $127,861 Food and beverage............................... 3,~~705~~958 ~~Depreciation~~4,421 7,918 8,513 Other........................................... 61,~~515~~949 62,~~647~~327 ~~Amortization~~3,915 of4,799 ~~deferred~~------- ~~financing~~------- ~~costs~~-------- as-------- ~~interest~~Total hotel revenues........................... ~~363~~70,947 ~~363~~73,156 ~~Loss~~140,323 on141,173 ~~disposition~~------- of------- ~~fixed~~-------- ~~assets~~-------- OPERATING COSTS AND EXPENSES Hotel property-level costs and expenses Rooms........................................... 114,064 4914,623 ~~Amortization~~28,063 of28,419 ~~prepaid~~Food ~~expenses~~and beverage............................... 23,578 ~~(15)~~3,762 ~~Changes~~7,156 in7,321 ~~operating~~Other ~~accounts~~department costs and expenses............. 664 576 1,114 961 Selling, administrative and other............... ~~(10~~16,~~089)~~450 (116,~~248)~~609 33,242 32,920 ------- ------- -------- ~~Cash~~-------- ~~provided~~Total byhotel ~~operating~~property-level ~~activities~~costs and expenses.. 34,756 35,570 69,575 69,621 Depreciation..................................... 16,~~936~~530 96,~~501~~566 ~~--------~~13,045 ~~-------~~13,213 ~~INVESTING~~Ground ~~ACTIVITIES~~rent, ~~Additions~~taxes ~~to property~~ and ~~equipment~~other..................... ~~(879)~~6,703 (17,~~444)~~500 ~~Change~~13,289 in14,216 ~~property~~Base ~~improvement~~and ~~funds~~Courtyard management fees............... 4,256 4,389 8,419 8,470 Incentive management fee......................... (43,~~355)~~235 (3,558 6,~~374)~~189 6,691 ------- ------- -------- ~~Cash~~-------- ~~used~~Total inoperating ~~investing~~costs ~~activities~~and expenses.............~~....~~ (555,~~234)~~480 (757,~~818)~~583 110,517 112,211 ------- ------- -------- ~~FINANCING~~-------- ~~ACTIVITIES~~OPERATING ~~Capital distributions~~PROFIT.................................. (615,~~204)~~467 (315,~~675)~~573 ~~Deferred~~29,806 ~~financing~~28,962 ~~costs~~Interest expense................................. (669,582) --(9,792) ~~Repayments~~(19,108) of(19,797) ~~debt~~Interest income.................................... ~~(2,897)~~370 ~~(2,688)~~459 701 780 ------- ------- -------- ~~Cash~~-------- ~~used~~NET ~~in financing activities~~INCOME........................................ (9$ 6,~~167)~~255 ($ 6,~~363)~~240 ~~--------~~$ ~~-------~~11,399 ~~DECREASE~~$ IN9,945 ~~CASH~~======= ~~AND~~======= ~~CASH~~======== ~~EQUIVALENTS~~======== ALLOCATION OF NET INCOME General Partner.................................. ~~(12,465)~~$ ~~(4,680)~~313 ~~CASH~~$ ~~AND~~312 ~~CASH~~$ ~~EQUIVALENTS~~570 at$ ~~beginning~~497 ofLimited ~~period~~Partners................................. 135,~~511~~942 235,~~341~~928 10,829 9,448 ------- ------- -------- ~~CASH~~-------- ~~AND~~$ ~~CASH~~6,255 ~~EQUIVALENTS~~$ at6,240 ~~end of period.............~~ $ 111,~~046~~399 $18 9,~~661~~945 ======= ======= ======== ~~SUPPLEMENTAL~~======== ~~DISCLOSURE~~NET OFINCOME ~~CASH~~PER ~~FLOW~~LIMITED ~~INFORMATION:~~PARTNER ~~Cash~~UNIT ~~paid~~(1,470 ~~for mortgage and other interest~~Units).................................... $ 114,~~263~~042 $11 4,~~453~~033 $ 7,367 $ 6,427 ======= ======= ======== ========

See Notes to Condensed Consolidated Financial Statements. 2 Courtyard by Marriott II Limited Partnership Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands)

~~Marriott~~Twenty-Four ~~International~~Weeks Ended June 15, ~~Inc.:~~June 16, 2001 2000 -------- -------- ~~Base~~OPERATING ~~management~~ACTIVITIES ~~fee~~Net income...................................................... $ 211,~~428~~399 $ 29,~~381~~945 ~~Incentive~~Depreciation.................................................... ~~management~~13,045 ~~fee~~13,213 Amortization of deferred financing costs as interest............ 728 725 (Gain)/loss on disposition of fixed assets...................... 2(4) 49 Changes in operating accounts................................... (4,~~954~~684) 3160 -------- -------- Cash provided by operating activities....................... 20,~~133~~484 ~~Chain~~24,092 ~~services~~-------- -------- INVESTING ACTIVITIES Additions to property and ~~Marriott~~equipment............................. ~~Rewards~~(1,798) ~~Program~~(5,655) Change in property improvement funds............................ 2(7,~~059~~929) 2(10,~~008~~689) ~~Courtyard~~-------- by-------- ~~Marriott~~Cash ~~system~~used ~~fee~~in investing activities........................... 1(9,~~734~~727) 1(16,~~700~~344) ~~Marketing~~-------- ~~fund~~-------- ~~contribution~~FINANCING ACTIVITIES Capital distributions........................................... 1(9,~~483~~936) 1(3,~~423~~675) Repayments of debt.............................................. (7,310) (6,783) -------- -------- $Cash used in financing activities........................... (17,246) (10,~~658~~458) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS............................ (6,489) (2,710) CASH AND CASH EQUIVALENTS at beginning of period................. 13,511 23,341 -------- -------- CASH AND CASH EQUIVALENTS at end of period....................... $10 7,~~645~~022 $ 20,631 ======== ======== ~~General~~SUPPLEMENTAL ~~Partner~~DISCLOSURE OF CASH FLOW INFORMATION: ~~Administrative~~Cash ~~expenses~~paid ~~reimbursed~~for mortgage and other interest....................... $ --18,933 $ --18,303 ======== ========

See Notes to Condensed Consolidated Financial Statements. 3 Courtyard by Marriott II Limited Partnership Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization Courtyard by Marriott II Limited Partnership (the "Partnership"), a Delaware limited partnership, owns 70 Courtyard by Marriott hotels located in 29 states within the contiguous United States. The hotels are operated under a management agreement by a subsidiary of Marriott International. 2. Summary of Significant Accounting Policies The accompanying unaudited, condensed consolidated financial statements have been prepared by the Partnership. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States have been condensed or omitted from the accompanying statements. The Partnership believes the disclosures made are adequate to make the information presented not misleading. However, the unaudited, condensed consolidated financial statements should be read in conjunction with the Partnership's consolidated financial statements and notes thereto included in the Partnership's Form 10-K for the year ended December 31, 2000. In the opinion of the Partnership, the accompanying unaudited, condensed consolidated financial statements reflect all adjustments necessary to present fairly the financial position of the Partnership as of June 15, 2001, the results of its operations for the twelve and twenty-four weeks ended June 15, 2001 and June 16, 2000 and cash flows for the twenty-four weeks ended June 15, 2001 and June 16, 2000. Interim results are not necessarily indicative of full year performance because of seasonal and short-term variations. Certain reclassifications were made to the prior year financial statements to conform to the 2001 presentation. For financial reporting purposes, the net income of the Partnership is allocated 95% to the limited partners and 5% to CBM Two LLC (the "General Partner"). Significant differences exist between the net income for financial reporting purposes and the net income reported for Federal income tax purposes. These differences are due primarily to the use for Federal income tax purposes of accelerated depreciation methods, shorter depreciable lives for certain assets, differences in the timing of the recognition of certain fees and straight-line rent adjustments. 3. Amounts Paid to the General Partner and Marriott International, Inc. The chart below summarizes amounts paid to Marriott International, Inc. for the twenty-four weeks ended June 15, 2001 and June 16, 2000 (unaudited, in thousands): Marriott International, Inc.: 2001 2000 ------- ------- Incentive management fee.............................. $ 2,040 $ 8,623 Base management fee................................... 4,911 4,941 Chain services and Marriott Rewards Program........... 4,238 4,313 Courtyard by Marriott system fee...................... 3,508 3,529 Marketing fund contribution........................... 2,981 2,953 ------- ------- $17,678 $24,359 ======= ======= 4 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain matters discussed herein are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should," "estimates," or "anticipates," or the negative thereof or other variations thereof or comparable terminology. All forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward- looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that any deviations will not be material. We disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this quarterly report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. RESULTS OF OPERATIONS Hotel Revenues. Total hotel revenues for the twelve weeks ended June 15, 2001 decreased $2.2 million, or 3% to $70.9 million compared to the same period in 2000. For the twenty-four weeks ended June 15, 2001, total hotel revenues decreased $850,000, or 1%, to $140.3 million compared to the twenty-four weeks ended June 16, 2000. The decrease in hotel revenues for both the second quarter of 2001 and year-to-date 2001 is due to a decrease in food and beverage revenues as well as a decrease in other revenues. These decreases were driven by a 5.1 percentage point decrease in occupancy for the second quarter of 2001 and a 3.7 percentage point decrease year-to-date. The results reflect a continued weakness in the economy which we expect to continue through the remainder of 2001. Room revenues increased $629,000, or 1%, to $128.5 million year-to-date and decreased $1.4 million, or 2%, to $65.0 million for the second quarter. The increase year-to-date is due to an increase in Revenue per available room ("REVPAR") of $0.36. The slight increase in REVPAR is due to an increase in average room rate of $5.13 that was partially offset by the 3.7 percentage point decrease in occupancy discussed above. For the quarter, REVPAR decreased $1.53 due to the decrease in occupancy discussed above, partially offset by an increase in average room rate of $4.31. Operating costs and expenses. Operating costs and expenses decreased $1.7 million, or 2%, to $110.5 million through the second quarter of 2001, and $2.1 million, or 4%, to $55.5 million for the second quarter of 2001 when compared to the same periods in 2000, primarily due to a decrease in incentive management fees and property-level expenses and a decrease in litigation expenses due to a lawsuit that was resolved in 2000. As a percentage of hotel revenues, operating costs and expenses represented 79% of revenues as of June 15, 2001 and June 16, 2000. For the quarters ended June 15, 2001 and June 16, 2000, operating costs and expenses represented 78% and 79% of hotel revenues, respectively. The Partnership's hotel property-level costs and expenses decreased $46,000 to $69.6 million year-to-date as of June 16, 2001, and decreased $814,000, or 2%, to $34.8 million for the second quarter of 2001 when compared to the same periods in 2000. The decrease is due to a $1.0 million decrease in controllable expenses as a result of decreased occupancy. This was partially offset by a $0.9 million increase in utility costs due to the inflation of energy costs. As a percentage of hotel revenues, property-level costs and expenses represented approximately 50% of revenues as of June 15, 2001 year-to-date, and 49% of revenues for the same period in 2000. For the second quarters of 2001 and 2000, property-level costs represented 49% of hotel revenues. 5 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Profit. Operating profit increased $844,000 as of June 15, 2001 to $29.8 million when compared to the same period in 2000. For the second quarter of 2001, operating profit decreased $106,000 compared to second quarter 2000. Operating profit represented 22% of revenues for second quarter 2001 and 21% for second quarter 2000. Year-to-date, operating profit represented 21% of hotel revenues for both 2001 and 2000. Interest Expense. Interest expense decreased $210,000, or 2% and $689,000, or 4% for the quarters ending June 15, 2001 and year-to-date through June 15, 2001, respectively, when compared to the same periods in 2000 as a result of principal amortization on the Certificates/Mortgage Loan. Net Income. Net income as of June 15, 2001 increased by $1.5 million to $11.4 million over prior year, and second quarter 2001 income increased by $15,000 when compared to second quarter 2000 as a result of the items discussed above. LIQUIDITY AND CAPITAL RESOURCES The Partnership's financing needs have historically been funded through loan agreements with independent financial institutions. The General Partner believes that cash from hotel operations will be sufficient to make the required debt service payments, to fund the current capital expenditures needs of the hotels as well as to make cash distributions to the limited partners. Principal Sources and Uses of Cash The Partnership's principal source of cash is from operations. Its principal uses of cash are to make debt service payments, fund the property improvement fund and to make distributions to limited partners. Cash provided by operations for second quarter 2001 was $20.5 million compared to $24.1 million for second quarter 2000. The decrease in cash provided by operations is primarily due to increased cash deposited into the restricted cash accounts to fund management fees and debt service due during 2001. Cash used in investing activities was $9.7 million and $16.3 million as of June 15, 2001 and June 16, 2000, respectively. Cash used in investing activities for 2001 includes capital expenditures of $1.8 million, primarily related to renovations and replacements of furniture, fixtures and equipment at the Partnership's hotels as compared to $5.7 million in 2000. The property improvement fund increased $7.9 million for the second quarter 2001 as compared to an increase of $10.7 million for the comparable period in 2000. Contributions to the property improvement fund were $9.1 million and $7.1 million as of the second quarter 2001 and 2000, respectively. As of June 16, 2000, the Partnership funded an additional $10.1 million to the property improvement fund for capital expenditures at the properties. Cash used in financing activities was $17.2 million and $10.5 million as of June 15, 2001 and June 16, 2000, respectively. The Partnership repaid $7.3 million and $6.8 million, respectively, of principal on the commercial mortgage-backed securities. Cash used in financing activities included $9.9 million of cash distributions to limited partners as of June 15, 2001 as compared to $3.7 million of distributions as of June 16, 2000. Distributions for 2001 are made on a monthly basis, instead of a quarterly basis as in prior years; therefore, partners have received distributions for the first through fifth periods of 2001 as of June 15, 2001. As of June 16, 2000, the partners had only been distributed cash from first quarter operations. 6 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership does not have significant market risk with respect to interest rates, foreign currency exchanges or other market rate or price risks, and the Partnership does not hold any financial instruments for trading purposes. As of June 15, 2001, all of the Partnership's debt is fixed rate. PART II. OTHER INFORMATION LEGAL PROCEEDINGS The Partnership is involved in routine litigation and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and which collectively are not expected to have a material adverse effect on the business, financial condition or results of operations of the Partnership. 7 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP By: CBM TWO LLC General Partner July 27, 2001 By: /s/ Mathew J. Whelan -------------------- Mathew J. Whelan Vice President 8

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