<PAGE> 1
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 FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14047
CARDINAL INDUSTRIES INCOME PROPERTIES I LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
OHIO 31-1218075
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
6954 AMERICANA PARKWAY, REYNOLDSBURG, OHIO 43068
(Address of principal executive offices) (Zip Code)
</TABLE>
(614) 759-1566
(Registrant's telephone number, including area code)
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
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
<PAGE> 2
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1996 (Unaudited) and
December 31, 1995 (Audited)...................................3
Statements of Operations for the Three Months
Ended March 31, 1996 and 1995 (Unaudited).....................4
Statements of Partners' Equity for the Three Months
Ended March 31, 1996 (Unaudited)............................. 5
Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 (Unaudited)....................6
Notes to the Financial Statements...................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................9
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................11
Item 2. CHANGES IN SECURITIES..............................................11
Item 3. DEFAULTS UPON SENIOR SECURITIES....................................11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................11
Item 5. OTHER INFORMATION..................................................11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................11
SIGNATURES...................................................................12
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
BALANCE SHEETS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
============ ============
<S> <C> <C>
ASSETS
Rental Properties:
Buildings and Improvements $ 9,355,013 $ 9,355,013
Personal Property 550,463 548,916
----------- -----------
9,905,476 9,903,929
Less Accumulated Depreciation (2,825,077) (2,744,869)
----------- -----------
7,080,399 7,159,060
Land 652,000 652,000
----------- -----------
7,732,399 7,811,060
Cash 87,889 74,082
Security Deposit Escrows 78,839 73,248
Tax and Insurance Escrows 76,441 105,826
Replacement Reserve 115,000 115,000
Marketable Securities (Note 2) 152,633 151,550
Accounts Receivable, Residents and Other 6,758 9,180
Prepaid Expenses and Other Assets 38,297 43,535
----------- -----------
$ 8,288,256 $ 8,383,481
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 28,347 $ 27,400
Accrued Liabilities 45,144 66,599
Accrued First Mortgage Interest 51,332 51,348
Residents' Security Deposits 71,652 68,399
Mortgage Notes Payable 7,588,210 7,638,332
----------- -----------
7,784,685 7,852,078
----------- -----------
Partners' Equity:
General 97,897 97,550
Limited 279,021 308,283
Net unrealized holding gain on marketable securities 126,653 125,570
----------- -----------
503,571 531,403
----------- -----------
$ 8,288,256 $ 8,383,481
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended
-----------------------
March 31, March 31,
1996 1995
========= =========
<S> <C> <C>
Revenues:
Rents $614,898 $573,274
Interest Income 2,390 3,711
Other 3,972 8,927
-------- --------
Total Revenues 621,260 585,912
-------- --------
Expenses:
Operating Expenses 247,572 213,033
Interest Expense 153,748 147,141
Depreciation and Amortization 80,208 86,766
Real Estate Taxes 27,961 30,214
Maintenance 40,916 29,248
Insurance 8,495 7,968
Property Management Fees 22,230 32,442
Administrative Expenses 5,405 10,365
-------- --------
Total Expenses 586,535 557,177
-------- --------
Net Income $ 34,725 $ 28,735
======== ========
Net Income allocated to General Partner (1%) $ 347 $ 287
======== ========
Net Income allocated to Limited Partners (99%) $ 34,378 $ 28,448
======== ========
Net Income per Limited Partnership Unit:
Income before Extraordinary Item $ 4.05 $ 3.36
Extraordinary Gain from Reorganization 0.00 0.00
-------- --------
Net Income $ 4.05 $ 3.36
======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Net
Unrealized
Holding
Limited Partnership Units: Gain on
--------------------------- General Limited Marketable
Class A Class B Partner Partners Securities Total
============ ============ ============ ============ ============ =============
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 6,525 1,953 $ 97,550 $ 308,283 $ 125,570 $ 531,403
Net Income 347 34,378 34,725
Distributions to Partners (63,640) (63,640)
Unrealized Holding Gain on
Marketable Securities 1,083 1,083
------------ ------------ ------------ ------------ ------------ -------------
Balance, March 31, 1996 6,525 1,953 $ 97,897 $ 279,021 $ 126,653 $ 503,571
============ ============ ============ ============ ============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
========= =========
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 34,725 $ 28,735
Adjustments to reconcile Net Income to Cash
provided by Operating Activities:
Depreciation and Amortization 80,208 86,766
Changes in Assets and Liabilities:
Accounts Receivable, Residents and Other 2,422 (7,256)
Prepaid Expenses 5,238 (29,789)
Accounts Payable 632 62,857
Accrued Liabilities (21,140) 991
Accrued First Mortgage Interest (16) 5,099
--------- ---------
Cash provided by Operating Activities 102,069 147,403
--------- ---------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (1,547) (110,220)
Increase in Security Deposit Escrow (5,591) (755)
Increase in Residents' Security Deposits 3,253 1,562
--------- ---------
Cash used in Investing Activities (3,885) (109,413)
--------- ---------
Cash Flows from Financing Activities:
Mortgage Principal Payments (50,122) (62,566)
Distribution to Limited Partners (63,640) (163,482)
--------- ---------
Cash used in Financing Activities (113,762) (226,048)
--------- ---------
Net Decrease in Cash and Cash Equivalents (15,578) (188,058)
Cash and Cash Equivalents, Beginning of Period 179,908 547,999
--------- ---------
Cash and Cash Equivalents, End of Period $ 164,330 $ 359,941
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 153,732 $ 142,042
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
The accompanying financial statements, except for the Balance Sheet at
December 31, 1995, are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, they contain all
adjustments necessary to present fairly the financial position and results of
operations of the Registrant. The financial statements should be read in
conjunction with the Registrant's Form 10-K.
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Cardinal Industries Income Properties I Limited Partnership (the
"Partnership"), an Ohio limited partnership, was formed July 28, 1987 for the
purpose of acquiring from the predecessor of Cardinal Realty Services, Inc. (the
"General Partner") and certain of its wholly-owned affiliates a 153-room Knights
Inn Motel in Madison Heights, Michigan ("Motel"), a 119-unit Cardinal Retirement
Village in Cuyahoga Falls, Ohio ("CRV") and Olivewood Apartments, a 150-unit
residential apartment complex in Sterling Heights, Michigan ("Olivewood"). In
1987, the Partnership completed an offering of 6,525 units of limited
partnership interest at a public offering price of $1,000 per unit for a total
of $6,525,000. The net proceeds from the offering were used by the Partnership
to purchase the above-mentioned properties from the General Partner and its
affiliates. All material inter-project transactions and balances have been
eliminated.
On July 12, 1990, the Partnership filed a petition for relief under
Chapter 11 of the U.S. Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of Ohio, Eastern Division (the
"Bankruptcy Court"). On February 13, 1992, the Motel was transferred to its
mortgagee in a consensual foreclosure proceeding. During 1993, the Partnership
filed its First Amended Plan of Reorganization with the Bankruptcy Court (the
"Plan of Reorganization" or "Plan"). The Plan was confirmed by the Bankruptcy
Court on February 16, 1994 with an effective date of March 1, 1994. A final
decree closing the bankruptcy proceeding was entered by the Bankruptcy Court,
effective July 13, 1995. The Plan provides for the following treatment of
limited partner interests.
Limited Partner Interests
Pursuant to the Plan of Reorganization, all 6,525 limited partnership
units were redesignated as "Class B Units". Limited Partners holding Class B
Units were then given the opportunity to exchange their Class B Units for "Class
A Units" by contributing $30 per unit. In exchange for their capital
contribution, Class A Unitholders would receive a preference on all cash
distributions, profit, losses and credits allocated to Limited Partners until
they receive distributions equal to their new capital contribution, plus a 20%
cumulative annual return on the new capital. Limited Partners who exchanged
their Class B Units for Class A Units were also given the opportunity to
purchase additional Class A Units (which Class A Units were limited to 6,525 in
the aggregate) by tendering an additional $30 per unit for each unit not
acquired by other Limited Partners. As a result of the initial exchange, Limited
Partners holding 4,572 Class B Units exchanged their Units for Class A Units,
and certain of these Limited Partners subsequently purchased the remaining 1,953
Class A Units not purchased by the other Limited Partners holding Class B Units.
Each Class A Unit receives nine times the allocations and distributions of each
Class B Unit.
7
<PAGE> 8
Partners' Equity
Profits and losses (as defined in the Partnership Agreement) from normal
operations are to be allocated between the Limited Partners and the General
Partner, 99% and 1%, respectively. In the event of a sale or liquidation of
Partnership properties, the Partnership Agreement provides for special
allocations of related gains or losses and cash distributions.
NOTE 2 - MARKETABLE SECURITIES
The Partnership received shares of Cardinal Realty Services, Inc. (the
"General Partner" or "Cardinal") common stock, without par value ("Cardinal
Stock"), during 1993 in connection with the settlement of prior bankruptcy
claims with the General Partner. These marketable securities are classified as
available for sale and, in accordance with Statement of Financial Accounting
Standards No. 115, the unrealized gain has been recorded in the statement of
partners' equity at March 31, 1996. This unrealized gain represents the increase
in the market value of the securities from the date received by the Partnership
to March 31, 1996.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Partnership conducts the business and operations of Olivewood and CRV.
The following discussion explains material changes in the Partnership's results
of operations, comparing the three months ended March 31, 1996 and 1995 and
significant developments affecting financial conditions since the end of 1995
and should be read in conjunction with the historical financial statements of
the Partnership.
RESULTS OF OPERATIONS
Total revenues for the first quarter of 1996 increased by approximately
$35,000, or 6.0%, as compared to the first quarter of 1995. Increased rents were
responsible for the improvement in revenues. The average rents for Olivewood and
CRV for the three months ended March 31, 1996 were $477 and $1,191,
respectively, as compared to $434 and $1,106, respectively, for the same period
in 1995. The average rents for the two properties combined for the three months
ended March 31, 1996 were $794, as compared to $733 for the same period in 1995.
The average physical occupancy for the two properties combined for the three
months ended March 31, 1996 was 95.9%, as compared to 97.4% for the same period
in 1995.
Total expenses for the first quarter of 1996 increased by approximately
$29,000, or 5.3%, as compared to the same period in 1995. Operating expenses
increased approximately $34,500 during the three months ended March 31, 1996, as
compared to the same period in 1995, due to the higher cost of employee
benefits. Interest expense increased by approximately $6,600 for the first three
months of 1996, as compared to the same period in 1995, due to CRV having an
upward interest rate adjustment on April 11, 1995, which increased the interest
expense. Depreciation expenses decreased approximately $6,500, or 7.5%, for the
first three months of 1996, as compared to the same period in 1995, due to the
personal property of Olivewood being fully depreciated as of December 31, 1995
with the exception of a fax machine. Maintenance expenses increased
approximately $11,700 in the first quarter of 1996, as compared to the same
period in 1995, primarily due to increased spending for replacements such as
tile, carpet, hot water tanks and painting. Property management fees decreased
approximately $10,000, or 31.5%, due to a reduction in management fees for CRV.
Previously, CRV's management contract required a payment of 5.5% of total
revenues to its property manager (the "Manager"). The General Partner and the
Manager are currently operating on a month-to-month contract whereby CRV pays
$1,500 per month to the Manager and 1% of total revenues to Mr. Richard
Dunston, who is acting as a consultant for property operations, capital
improvements and evaluation of potential management companies. Mr. Dunston is
currently evaluating the need to upgrade CRV's current security systems. Mr.
Dunston will continue in his capacity until a decision by the General Partner
is reached to continue its relationship with the Manager or to employ another
management company, which decision is expected to be made in the next six
months. Administrative expenses decreased approximately $5,000 in the first
three months of 1996, as compared to the same period in 1995, as a result of a
decrease in audit fees in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion regarding liquidity and capital resources should
be read in conjunction with the Balance Sheets as of March 31, 1996 and December
31, 1995 and the Statements of Cash Flows for the three months ended March 31,
1996 and 1995.
The principal sources of liquidity for the Partnership are (i) cash and
cash equivalents; and (ii) cash flow from operations. The Partnership
anticipates that these sources will be adequate to meet the reasonably
foreseeable capital and liquidity needs of the Partnership for the next two
years.
9
<PAGE> 10
Cash, exclusive of Security Deposit Escrows and Tax and Insurance Escrows,
was approximately $88,000 at March 31, 1996. An operating reserve in the amount
of $115,000 continues to be maintained in accordance with the requirements of
the Plan of Reorganization. The 8,660 shares of Cardinal Stock held by the
Partnership had a fair market value of $152,633 based on the closing price of
$17.625 as quoted by the Nasdaq National Market System on March 29, 1996, the
last business day of the first quarter. Since the Partnership is deemed to be an
affiliate of Cardinal for securities laws purposes, the Cardinal Stock received
by the Partnership is not freely tradeable, and may only be sold by the
Partnership either (a) pursuant to an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") or (b) pursuant
to an exemption from the registration requirements of the Securities Act. In
addition, any material nonpublic information in its possession is attributable
to the Partnership, and therefore the Partnership will only be able to sell the
Cardinal Stock during limited periods when no such material nonpublic
information exists.
The Partnership's major maintenance and replacement expenditures in the
first three months of 1996 amounted to approximately $18,000, which amount was
spent for carpet and tile replacement, cleaning draperies, hot water tanks, and
furniture and appliance replacements. Management anticipates approximately
$140,000 of major maintenance and replacement expenditures will be incurred for
the balance of 1996. Management believes existing cash and cash flow from
operations are adequate to meet the Partnership's capital needs.
10
<PAGE> 11
PART II
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
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
Cardinal Realty Services, Inc.,
as General Partner
Dated May 15, 1996 By: /s/ John B. Bartling, Jr.
--------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated May 15, 1996 By: /s/ David P. Blackmore
--------------------------------------
David P. Blackmore
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated May 15, 1996 By: /s/ Ronald P. Koegler
--------------------------------------
Ronald P. Koegler
Vice President and Treasurer
Dated May 15, 1996 By: /s/ Tamra L. Byers
--------------------------------------
Tamra L. Byers
Vice President of Financial Operations
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 87,889
<SECURITIES> 152,633
<RECEIVABLES> 11,633
<ALLOWANCES> 4,875
<INVENTORY> 0
<CURRENT-ASSETS> 555,857
<PP&E> 10,557,476
<DEPRECIATION> 2,825,077
<TOTAL-ASSETS> 8,288,256
<CURRENT-LIABILITIES> 196,475
<BONDS> 7,588,210
0
0
<COMMON> 0
<OTHER-SE> 503,571
<TOTAL-LIABILITY-AND-EQUITY> 8,288,256
<SALES> 0
<TOTAL-REVENUES> 621,260
<CGS> 0
<TOTAL-COSTS> 586,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,748
<INCOME-PRETAX> 34,725
<INCOME-TAX> 0
<INCOME-CONTINUING> 34,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,725
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
