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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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)
OHIO 31-1218075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6954 AMERICANA PARKWAY
REYNOLDSBURG, OHIO 43068
(Address of principal executive offices including zip code)
(614) 759-1566
(Registrant's telephone number, including area code)
------------------------------------
Indicate by check X 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 X 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 1 of 13 sequentially numbered pages
Exhibit Index on page 11.
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<PAGE>
2
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. FINANCIAL STATEMENTS Page No.
Balance Sheets as of September 30, 1996 (Unaudited) and
December 31, 1995 (Audited)......................................................3
Statements of Operations for the Three and Nine Months
Ended September 30, 1996 and 1995 (Unaudited)....................................4
Statement of Partners' Equity for the Nine Months
Ended September 30, 1996 (Unaudited)............................................ 5
Statements of Cash Flows for the Nine Months
Ended September 30, 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
</TABLE>
2
<PAGE>
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
September December 31,
30, 1995
1996
------------------ -------------------
<S> <C> <C>
ASSETS
Rental Properties:
Buildings and Improvements $ 9,357,508 $ 9,355,013
Personal Property 551,589 548,916
------------------ -------------------
9,909,097 9,903,929
Less Accumulated Depreciation (2,985,492) (2,744,869)
------------------ -------------------
6,923,605 7,159,060
Land 652,000 652,000
------------------ -------------------
7,575,605 7,811,060
Cash 83,708 74,082
Security Deposit Escrows 76,080 73,248
Tax and Insurance Escrows 66,973 105,826
Replacement Reserve 115,000 115,000
Marketable Securities (Note 2) 171,035 151,550
Accounts Receivable, Residents and Other 759 9,180
Prepaid Expenses and Other Assets 46,312 43,535
------------------ -------------------
$ 8,135,472 $ 8,383,481
================== ===================
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 22,330 $ 27,400
Accrued Liabilities 52,363 66,599
Accrued First Mortgage Interest 51,942 51,348
Residents' Security Deposits 73,714 68,399
Mortgage Notes Payable 7,476,995 7,638,332
------------------ -------------------
7,677,344 7,852,078
------------------ -------------------
Partners' Equity:
General 97,748 97,550
Limited 215,325 308,283
Net unrealized holding gain on
marketable securities 145,055 125,570
------------------ -------------------
458,128 531,403
------------------ -------------------
$ 8,135,472 $ 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 AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Rents $ 611,692 $ 584,111 $ 1,836,164 $ 1,728,119
Interest Income 2,551 2,001 7,723 9,440
Other 5,246 318 17,206 18,079
----------------- --------------- ---------------- -----------------
Total Revenues 619,489 586,430 1,861,093 1,755,638
----------------- --------------- ---------------- -----------------
Expenses:
Operating Expenses 226,958 207,158 752,365 627,349
Interest Expense 153,185 156,628 460,104 460,657
Depreciation and Amortization 80,207 86,766 240,623 260,299
Real Estate Taxes 30,207 30,121 88,374 90,548
Maintenance 104,460 79,500 207,161 163,937
Insurance 7,338 7,956 22,162 23,585
Property Management Fees 16,613 31,793 58,308 96,219
Administrative Expenses 2,242 932 12,147 31,985
----------------- --------------- ---------------- -----------------
Total Expenses 621,210 600,854 1,841,244 1,754,579
----------------- --------------- ---------------- -----------------
Income/(Loss) before Reorganization Expenses (1,721) (14,424) 19,849 1,059
Reorganization Expenses 0 0 0 22,774
----------------- --------------- ---------------- -----------------
Net Income/(Loss) $ (1,721) $ (14,424) $ 19,849 $ (21,715)
================= =============== ================ =================
Net Income/(Loss) allocated to General Partner (1%) $ (17) $ (144) $ 198 $ (217)
================= =============== ================ =================
Net Income/(Loss) allocated to Limited Partners (99%) $ (1,704) $ (14,280) $ 19,651 $ (21,498)
================= =============== ================ =================
Net Income per Limited Partnership Unit:
Income/(Loss) before Reorganization Expenses $ (0.20) $ (1.68) $ 2.32 $ 0.12
Reorganization Expenses 0.00 0.00 0.00 (2.66)
----------------- --------------- ---------------- -----------------
Net Income/(Loss) $ (0.20) $ (1.68) $ 2.32 $ (2.54)
================= =============== ================ =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
5
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Net
Unrealized
Limited Partnership Holding
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 198 19,651 19,849
Distributions to Partners (112,609) (112,609)
Unrealized Holding Gain on
Marketable Securities 19,485 19,485
------------ ------------ ------------ ------------ ------------ -------------
Balance, September 30, 1996 6,525 1,953 $ 97,748 $ 215,325 $ 145,055 $ 458,128
============ ============ ============ ============ ============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
6
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------------ -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income/(Loss) $ 19,849 $ (21,715)
Adjustments to reconcile Net Income/(Loss) to Cash
provided by Operating Activities:
Depreciation and Amortization 240,623 260,299
Changes in Assets and Liabilities:
Accounts Receivable, Residents and Other 8,421 3,041
Prepaid Expenses (2,777) (24,550)
Accounts Payable (5,070) 5,746
Accrued Liabilities (14,236) (1,730)
Accrued First Mortgage Interest 594 6,943
------------------ -----------------
Cash provided by Operating Activities 247,404 228,034
------------------ -----------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (5,168) (144,868)
Increase in Security Deposit Escrow (2,832) (1,592)
Increase in Residents' Security Deposits 5,315 (40)
------------------ -----------------
Cash used in Investing Activities (2,685) (146,500)
------------------ -----------------
Cash Flows from Financing Activities:
Mortgage Principal Payments (161,337) (152,720)
Distribution to Limited Partners (112,609) (262,652)
------------------ -----------------
Cash used in Financing Activities $ (273,946) $ (415,372)
------------------ -----------------
Net (Decrease) in Cash, Tax and Insurance Escrows $ (29,227) $ (333,838)
Cash, Tax and Insurance Escrows, Beginning of Period $ 179,908 $ 432,999
------------------ -----------------
Cash, Tax and Insurance Escrows, End of Period $ 150,681 $ 99,161
================== =================
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 460,698 $ 467,600
================== =================
</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.
("Cardinal" or 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. 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.
RECLASSIFICATION
----------------
The Statements of Operations for the three and nine months ended
September 30, 1995 have been reclassified to conform to the 1996 presentation,
which is due to a reclassification of payroll expenses, between other income,
operating expenses and maintenance expense.
NOTE 2 - MARKETABLE SECURITIES
The Partnership received shares of 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 September 30, 1996. This unrealized gain
represents the increase in the market value of the securities from the date
received by the Partnership to September 30, 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
Apartments of Sterling Heights, Michigan ("Olivewood") and Cardinal Retirement
Village of Cuyahoga Falls, Ohio ("CRV"). The following discussion explains
material changes in the Partnership's results of operations, comparing the three
and nine months ended September 30, 1996 and 1995 and significant developments
affecting the Partnership's financial condition 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 nine months of 1996 increased by
approximately $105,000, or 6.0%, as compared to the first nine months of 1995.
Total Revenues for the third quarter of 1996 increased by approximately $33,000,
or 5.6%, over the third quarter of 1995. Increased rents contributed an increase
of approximately $108,000 and $27,500 to total revenues for the nine and three
month periods, respectively. The average rents for Olivewood and CRV for the
three months ended September 30, 1996 were $487 and $1,212, respectively, as
compared to $454 and $1,146, respectively, for the same period in 1995. The
average physical occupancy for Olivewood and CRV for the three months ended
September 30, 1996 was 96.9% and 93.6%, respectively, as compared to 98.4% and
91.0%, respectively, for the same period in 1995.
Total Expenses for the first nine months of 1996 increased by
approximately $87,000, or 4.9%, as compared to the same period in 1995. Total
Expenses for the third quarter of 1996 increased by approximately $20,000, or
3.4%, over the same period in 1995. Operating Expenses for the first nine months
of 1996 increased approximately $125,000, or 19.9%, as compared to the same
period in 1995. Operating Expenses for the third quarter of 1996 increased by
approximately $19,800, or 9.6%, as compared to the same period in 1995. The
year-to-date increase resulted from two factors: (1) the higher cost of employee
benefits at CRV and (2) a non-recurring expense of approximately $22,000
resulting from an audit by the Ohio Bureau of Workers' Compensation (the
"Bureau") on CRV. The audit determined that the calculations of amounts due to
the Bureau were understated for 1993, 1994, and the first half of 1995.
Maintenance Expenses for the first nine months of 1996 increased approximately
$43,000, or 26.4%, as compared to the same period in 1995. Maintenance expenses
for the third quarter of 1996 increased approximately $25,000, or 31.4%, over
the third quarter of 1995. The year-to-date increase resulted from increased
spending for replacement of tile, carpet, refrigerators, interior painting,
replacement of the "Up and About" security system at CRV, and exterior painting
and siding repair at CRV. During 1995, related expenditures completed at CRV
focused primarily on the completion of the assisted- living wing and were
capitalized. In contrast, repairs and maintenance in the first nine months of
1996 focused on interior replacement of carpet and exterior painting. Property
Management Fees decreased approximately $37,900, or 39.4%, for the first nine
months of 1996 as compared to the first nine months of 1995. Property Management
Fees for the third quarter of 1996 decreased approximately $15,000, or 47.7%,
over the third quarter of 1995. Previously, CRV's management contract required a
payment of 5.5% of total revenues to its property manager (the "Manager"). In
1996, the General Partner and the Manager have operated on a month-to-month
contract whereby CRV paid $1,500 per month to the Manager (less than 1% of total
revenues) and 1% of total revenues to Mr. Richard Dunston, who acted as a
consultant for property operations, capital improvements and evaluation of
potential management companies. Mr. Dunston's final payment was made in July of
this year. Administrative Expenses decreased approximately $19,800, or 62.0%,
for the first nine months of 1996, as compared to the same period in 1995, as a
result of a decrease in audit fees for 1996.
9
<PAGE>
10
LIQUIDITY AND CAPITAL RESOURCES
The following discussion regarding liquidity and capital resources should
be read in conjunction with the Balance Sheets as of September 30, 1996 and
December 31, 1995 and the Statements of Cash Flows for the nine months ended
September 30, 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.
Cash, exclusive of Security Deposit Escrows and Tax and Insurance
Escrows, was approximately $84,000 at September 30, 1996. A Replacement 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 approximately $170,000 on
September 30, 1996 based on the closing price of $19.75 as quoted by the Nasdaq
National Market System on the last business day of the third 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, since Cardinal is
the General Partner of the Partnership, 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 nine months of 1996 amounted to approximately $115,000, which amount was
spent for carpet and tile replacement, cleaning draperies, hot water tanks,
furniture and appliance replacements, an upgrade of the nurse call station at
CRV, vinyl siding repairs, and exterior painting. Management anticipates
approximately $17,600 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
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------- ------------------------------------------
<S> <C> <C>
27 Financial Data Schedule Filed as an Exhibit to this Form 10-Q
on page 13.
</TABLE>
(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
By: Cardinal Realty Services, Inc.,
as General Partner
Dated November 14, 1996 By: /s/ Mark D. Thompson
----------------------------------
Mark D. Thompson
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated November 14, 1996 By: /s/ Ronald P. Koegler
----------------------------------
Ronald P. Koegler
Vice President and Controller
Dated November 14, 1996 By: /s/ Tamra L. Byers
----------------------------------
Tamra L. Byers
Vice President of Financial Operations
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
13
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AND THE STATEMENT
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 83,708
<SECURITIES> 171,035
<RECEIVABLES> 8,174
<ALLOWANCES> 7,415
<INVENTORY> 0
<CURRENT-ASSETS> 559,867
<PP&E> 10,561,097
<DEPRECIATION> 2,985,492
<TOTAL-ASSETS> 8,135,472
<CURRENT-LIABILITIES> 200,349
<BONDS> 7,476,995
0
0
<COMMON> 0
<OTHER-SE> 458,128
<TOTAL-LIABILITY-AND-EQUITY> 8,135,472
<SALES> 0
<TOTAL-REVENUES> 1,861,093
<CGS> 0
<TOTAL-COSTS> 1,841,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 460,104
<INCOME-PRETAX> 19,849
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,849
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
