SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amended FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2000 Commission File No. 000-16950
Prometheus Income Partners, a California Limited Partnership
(Exact name of registrant as specified in its charter)
California 77-0082138
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
350 Bridge Parkway
Redwood City, California 94065-1517
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (650) 596-5300
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 [X] No [ ]
PART I: FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K filed by the Partnership for the year ended
December 31, 1999. These statements have been prepared in accordance with the
instructions of the Securities and Exchange Commission Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Historically the Rigistrant's Form 10-Q Filings have not made any
adjustments for the capitalization of improvements except in conjunction with
the year-end financial statements. This Amended Form 10-Q reflects the
financial results on a basis consistent with the Registrant's Form 10-K
Filing. While the financial information is unaudited, in the opinion of the
Partnership, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results
of operations for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000.
PROMETHEUS INCOME PARTNERS
a California Limited Partnership
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(Unaudited and in Thousands, Except for Unit Data)
March 31, December 31,
2000 1999
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ASSETS
Real Estate:
Land, buildings and improvements $ 30,366 $ 30,288
Accumulated depreciation (8,350) (8,183)
-------- --------
22,016 22,105
Cash and cash equivalents 2,020 1,942
Restricted cash 5,024 4,558
Deferred expenses, net 231 239
Accounts receivable and other assets 5 29
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Total assets $ 29,296 $ 28,873
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Notes payable $ 26,113 $ 26,188
Payables and accrued liabilities 363 324
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Total liabilities 26,476 26,512
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General partner deficit (373) (378)
Limited partners' capital
18,995 limited partnership units
issued and outstanding 3,193 2,739
-------- --------
Total partners' capital (deficit) 2,820 2,361
-------- --------
Total liabilities and
partners' capital (deficit) $ 29,296 $ 28,873
======== ========
The accompanying notes are an integral
part of these financial statements.
PROMETHEUS INCOME PARTNERS
a California Limited Partnership
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited and in Thousands, Except for Unit Data)
2000 1999
----------- -----------
REVENUES
Rental $ 1,520 $ 1,400
Other income 26 43
Interest income 114 58
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Total revenues 1,660 1,501
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EXPENSES
Interest and amortization 468 473
Operating 360 248
Depreciation 167 140
Administrative 13 14
Payments to general partner and affiliates:
Management fees 77 73
Operating and administrative 116 94
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Total expenses 1,201 1,042
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NET INCOME $ 459 $ 459
======= =======
Net income per $1,000
limited partnership unit $ 24 $ 24
======= =======
Number of limited partnership
units used in computation 18,995 18,995
======= =======
The accompanying notes are an integral
part of these financial statements.
PROMETHEUS INCOME PARTNERS
a California Limited Partnership
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited and in Thousands)
2000 1999
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 459 $ 459
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 167 140
Amortization 7 7
Increase (decrease) in accounts receivable
and other assets 24 (11)
Decrease (increase) in payables
and accrued liabilities 40 (161)
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Net cash provided by operating activities 697 434
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CASH FLOW FROM INVESTING ACTIVITIES
Increase in fixed asset additions (78) (51)
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase in restricted cash (466) (427)
Principal reductions on notes payable (75) (70)
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Net cash used for financing activities (541) (497)
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Net increase (decrease) in cash and
cash equivalents 78 (114)
Cash and cash equivalents at beginning of year 1,942 1,183
------- -------
Cash and cash equivalents at end of period $ 2,020 $ 1,069
======= =======
The accompanying notes are an integral
part of these financial statements
PROMETHEUS INCOME PARTNERS
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP
Prometheus Income Partners, a California Limited Partnership (the
"Partnership"), was formed to construct, invest in, operate and ultimately
sell two multi-family apartment projects ("Properties"), Alderwood Apartments
("Alderwood") and Timberleaf Apartments ("Timberleaf"), located in Santa Clara,
California. The General Partner is Prometheus Development Co., Inc., a
California corporation.
The financial information has been restated as of March 31, 2000 and for
the three months ended March 31, 2000 and 1999 to reflect capitalization of
improvements on a basis consistent with the practices followed annually.
The financial information included herein at March 31, 2000 and for the
three months ended March 31, 2000 and 1999 is unaudited and, in the opinion
of the Partnership, reflects all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the financial
position as of those dates and the results of operations for those periods.
Management fees and payments to the General Partner and affiliates represent
compensation for services provided and certain expense requirements, at cost,
in accordance with the Partnership Agreement. The information in the Balance
Sheets at December 31, 1999 was derived from the Partnership's audited annual
report for 1999.
Partnership profits, losses and distributions are allocated among the
partners based on the provisions of the Partnership Agreement which generally
provide for allocations to begin when the partners are admitted to the
Partnership.
2. INCOME TAXES
In accordance with federal and California income tax regulations, no
income taxes are levied on the Partnership; rather, such taxes are levied on
the individual partners. Consequently, no provision or liability for federal
or California income tax has been reflected in the accompanying financial
statements.
3. CONSTRUCTION DEFECTS
The General Partner has learned that the type of hardboard siding that
was used at both Alderwood and Timberleaf is failing to perform as expected in
a number of projects in various parts of the United States.
Two lawsuits have been filed, one for each Property. At this time,
experts on behalf of the Partnership have concluded the initial visual
inspection, the scientific testing of the siding material and destructive
investigation. The defendants have also completed their destructive
investigation. Additionally, certain structural issues were uncovered at
Timberleaf and were rebuilt as part of the immediate repair process. The
General Partner subsequently determined that additional immediate repairs
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CONSTRUCTION DEFECTS (CONTINUED)
were necessary. These repairs (with the exception of roof repairs noted
below) have been completed and the General Partner continues to monitor the
condition of the Property.
Routine roofing inspection has uncovered failing roof substrate at dormer
roof assemblies for both Alderwood and Timberleaf. The cause has been traced
to inadequate venting of the roof space. The roof repair design and repair
bids have been received and are currently being evaluated and a repair scope
refined so this work may proceed as necessary. The passage of time and ongoing
investigations have resulted in a number of deficiencies, other than the siding
material being uncovered.
Both cases continue to be under the supervision of the Special Master.
The investigation and other subsequent discoveries that will occur are ordered
by the Special Master on behalf of both plaintiffs and defendants in an effort
to come to a settlement. Destructive investigation, completed under the order
of the Special Master, has produced a preliminary issues list which the
Special Master will use in attempting to prompt a settlement from the
defendants. This information is protected by the Special Master and is not for
general distribution.
It is possible that a settlement can occur anytime, but it appears
unlikely, as one of the primary defendants has demonstrated very little
willingness to settle. In the absence of a settlement, the Special Master will
eventually order a trial date to be set.
A trial date has not yet been ordered by the Special Master. The General
Partner has and is demanding a trial date be set so this matter can be
resolved. However, even if a trial date is set it will still likely take two
to three years to complete the matter. In addition, the discovery of
additional construction defect problems, as discussed above, will likely
result in additional delays.
The extent and magnitude of the construction defects continues to worsen
with time. The General Partner believes that the Partnership can no longer
wait for the cases to be settled and has authorized the start of repairs using
the cash reserve funds currently held. It is anticipated that funds held in
reserve are not adequate to repair the entire project, so completion of the
most critical projects will be prioritized.
Lastly, one defendant named in the Partnership's complaint filed a cross
complaint against the Partnership. The amount of damages being sought is
unspecified at this time.
In addition to the security accounts mandated by the Partnership's
lender, the General Partner has determined that it is in the best interest of
the Partnership to continue building reserves for the potential cost of
dealing with the construction defect problems. At this time, the General
Partner cannot predict when cash distributions will resume due to the build up
of reserves. However, it is the General Partner's current intention to resume
distributions as soon as reasonably possible and prudent. The reinstatement
and level of future distributions will be dependent on several factors,
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CONSTRUCTION DEFECTS (CONTINUED)
including the degree of damage caused by the construction defect problems, and
continued stabilized operations at the Properties.
Since the filing of the Form 10-K, a settlement conference was held.
However, no agreement was reached with the defendants. The Judge in this
matter has ordered a case management conference for May 26, 2000, and may set
a trial date at this time. Other litigation efforts are ongoing.
4. REAL ESTATE
Statement of Financial Accounting Standards 121 ("SFAS 121"), Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of, requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In connection with the construction defect
problems, the General Partner reviewed the projected cash flows of both
Properties to ensure an adjustment of the book value was not required in
accordance with SFAS 121. Further, although the full extent of the damage to
the hardboard siding for the Properties is unknown, management believes that
the fair market value of each Property still remains greater than its
respective book value.
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Alderwood and Timberleaf, which are located in Santa Clara, California,
are apartment complexes with 234 units and 124 units, respectively. The
Properties commenced operations at completion of construction in December 1986.
Liquidity and Capital Resources
Cash generated by operations during the first three months of 2000 was
used to pay current operating expenses and debt service, including payments to
the hardboard siding security account.
Quarterly distributions have been suspended in order to accumulate
working capital reserves until the degree of damage from the construction
defects and determination of liability are known. See Note 3 to Financial
Statements, Construction Defects, for a more comprehensive discussion of this
matter.
Each Property has a non-recourse note payable, secured by a first deed of
trust. These notes bear fixed interest of 6.99% for Alderwood and 7.09% for
Timberleaf.
The terms of the notes require that each Property maintain a hardboard
siding security account. These security accounts are additional collateral for
the lender. Cash held in these security accounts was $2,905,000 and $2,119,000
for Alderwood and Timberleaf, respectively, as of March 31, 2000. Until the
Completion Date, as defined, an additional 10%, as defined, or monthly cash
flow, whichever is less, shall be deposited into each security account. Should
the hardboard siding repairs not be completed by December 2002, or every two
years thereafter, and insufficient cash has been accumulated to cure the
defects based upon the lender's determination of the cost, then all cash flow
shall be deposited into each applicable security account, as necessary, to
fully fund the cost of construction. If the projected cash flow is
insufficient to satisfy this deficiency contribution, then the Partnership has
60 days to fund the shortage over the projected cash flow. No withdrawals are
permitted from the account except to cure the siding defects. The lender shall
have the right to hire its own consultants to review, approve and inspect the
construction. All such reasonable fees and expenses incurred by the lender
shall be paid by the Partnership.
Should the litigation not be settled by December 2002, and the
Partnership has met all its obligations under the notes, then the Completion
Date, shall be extended 18 months from the earlier of the pending settlement
date or the last day for filing an appeal. Should construction not be
completed by the Completion Date due to an act of force majeure, the
Completion Date can be further extended to complete the construction work.
Results of Operations
During the past year, Santa Clara County has experienced a relatively
flat growth in the creation of new jobs (.3%), yet unemployment dropped from
3.3% to 2.1% during this time period. In the first quarter of 2000, the
Properties marketed available units at rents that averaged $1,430 for one
bedroom units and $1,815 for two bedroom units. Average occupied rent per unit
for the quarter was $1,438 and average occupancy during the quarter was 99%
for Alderwood and 98% for Timberleaf. As of March 31, 2000, Alderwood and
Timberleaf were both 99% occupied. In the first quarter of 1999, the
Properties marketed available units at rents that average $1,220 for one
bedroom units and $1,486 for two bedroom units. Average occupied rent per unit
for the quarter was $1,362 and average occupancy during the quarter was 96%
for Alderwood and 97% for Timberleaf. As of March 31, 1999, Alderwood was 95%
occupied and Timberleaf was 97% occupied.
Excluding expenditures, relating to quantification of the extent of
damage to the hardboard siding and associated litigation costs, operating
expenses increased 8%. The following first quarter operating expenses
increased between years: payroll, benefits and taxes due to salary increases;
utilities primarily due to increases of water and sewer usage and rates;
partnership expenses due to audit fees; and major repairs and maintenance due
to hardboard siding and associated litigation costs. These increases were
offset principally by landscaping due to savings in lake, landscaping and pool
supplies. Operating expenses, inclusive of hardboard siding related costs,
increased 32%.
Overall, net operating income decreased 3% during the first three months
of 2000 when compared to the first three months of 1999.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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.
PROMETHEUS INCOME PARTNERS,
a California Limited Partnership
By: PROMETHEUS DEVELOPMENT CO., INC.,
a California corporation,
It's General Partner
Date: September 6, 2000 By: /s/ Vicki R. Mullins
Vice President
Date: September 6, 2000 By: /s/ John J. Murphy
Vice President
EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information.
