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 June 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) (Zip Code)
(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 1 of 12 sequentially numbered pages
Exhibit Index on Page 11
1
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements
Balance Sheets as of June 30, 1996 (Unaudited) and
December 31, 1995 (Audited).............................................................3
Statements of Operations for the Three and Six Months
Ended June 30, 1996 and 1995 (Unaudited)................................................4
Statement of Partners' Equity for the Six Months
Ended June 30, 1996 (Unaudited).........................................................5
Statements of Cash Flows for the Six Months
Ended June 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>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
================== ===================
ASSETS
<S> <C> <C>
Rental Properties:
Buildings and Improvements $ 9,357,508 $ 9,355,013
Personal Property 550,463 548,916
------------------ -------------------
9,907,971 9,903,929
Less Accumulated Depreciation (2,905,285) (2,744,869)
------------------ -------------------
7,002,686 7,159,060
Land 652,000 652,000
------------------ -------------------
7,654,686 7,811,060
Cash 148,591 74,082
Security Deposit Escrows 74,495 73,248
Tax and Insurance Escrows 84,357 105,826
Replacement Reserve 115,000 115,000
Marketable Securities (Note 2) 171,035 151,550
Accounts Receivable, Residents and Other 5,598 9,180
Prepaid Expenses and Other Assets 23,837 43,535
------------------ -------------------
$ 8,277,599 $ 8,383,481
================== ===================
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 36,775 $ 27,400
Accrued Liabilities 51,414 66,599
Accrued First Mortgage Interest 51,328 51,348
Residents' Security Deposits 71,875 68,399
Mortgage Notes Payable 7,557,389 7,638,332
------------------ -------------------
7,768,781 7,852,078
------------------ -------------------
Partners' Equity:
General 97,766 97,550
Limited 265,997 308,283
Net unrealized holding gain on marketable securities 145,055 125,570
------------------ -------------------
508,818 531,403
------------------ -------------------
$ 8,277,599 $ 8,383,481
================== ===================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -------------------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
================= =============== ================ =================
<S> <C> <C> <C> <C>
Revenues:
Rents $ 609,574 $ 570,735 $ 1,224,472 $ 1,144,008
Interest Income 2,782 3,728 5,172 7,439
Other 7,988 7,693 11,960 17,761
----------------- --------------- ---------------- -----------------
Total Revenues 620,344 582,156 1,241,604 1,169,208
----------------- --------------- ---------------- -----------------
Expenses:
Operating Expenses 277,835 210,311 525,407 420,190
Interest Expense 153,171 156,888 306,919 304,029
Depreciation and Amortization 80,208 86,766 160,416 173,532
Real Estate Taxes 30,206 30,214 58,167 60,428
Maintenance 61,785 50,895 102,701 84,437
Insurance 6,329 7,661 14,824 15,629
Property Management Fees 19,465 31,984 41,695 64,426
Administrative Expenses 4,500 20,688 9,905 31,053
----------------- --------------- ---------------- -----------------
Total Expenses 633,499 595,407 1,220,034 1,153,724
----------------- --------------- ---------------- -----------------
Net Income/(Loss) Before Reorganization Expenses (13,155) (13,251) 21,570 15,484
Reorganization Expenses 0 22,774 0 22,774
----------------- --------------- ---------------- -----------------
Net Income/(Loss) $ (13,155) $ (36,025) $ 21,570 $ (7,290)
================= =============== ================ =================
Net Income/(Loss) allocated to General Partner (1%) $ (132) $ (360) $ 216 $ (73)
================= =============== ================ =================
Net Income/(Loss) allocated to Limited Partners (99%) $ (13,023) $ (35,665) $ 21,354 $ (7,217)
================= =============== ================ =================
Net Income per Limited Partnership Unit:
Income/(Loss) before Reorganization Expense $(1.54) $ (1.55) $ 2.52 $ 1.81
Reorganization Expense 0.00 2.65 0.00 2.66
----------------- --------------- ---------------- -----------------
Net Income/(Loss) $(1.54) $ (4.20) $ 2.52 $ (0.85)
================= =============== ================ =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 216 21,354 21,570
Distributions to Partners (63,640) (63,640)
Unrealized Holding Gain on
Marketable Securities 19,485 19,485
------------ ------------ ------------ ------------ ------------ -------------
Balance, June 30, 1996 6,525 1,953 $ 97,766 $ 265,997 $ 145,055 $ 508,818
============ ============ ============ ============ ============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES I
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
================== =================
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income/(Loss) $ 21,570 $ (7,290)
Adjustments to reconcile Net Income to Cash
provided by Operating Activities:
Depreciation and Amortization 160,416 173,532
Changes in Assets and Liabilities:
Accounts Receivable, Residents and Other 3,582 959
Prepaid Expenses 19,698 (189)
Accounts Payable 9,375 8,418
Accrued Liabilities (15,185) 11,022
Accrued First Mortgage Interest (20) 5,675
------------------ -----------------
Cash provided by Operating Activities 199,436 192,127
------------------ -----------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (4,042) (137,502)
Increase in Security Deposit Escrow (1,247) 1,401
Increase in Residents' Security Deposits 3,476 (1,560)
------------------ -----------------
Cash used in Investing Activities (1,813) (137,661)
------------------ -----------------
Cash Flows from Financing Activities:
Mortgage Principal Payments (80,943) (90,249)
Distribution to Limited Partners (63,640) (163,482)
------------------ -----------------
Cash used in Financing Activities (144,583) (253,731)
------------------ -----------------
Net Increase/(Decrease) in Cash and Cash Equivalents 53,040 (199,265)
Cash and Cash Equivalents, Beginning of Period 179,908 432,999
------------------ -----------------
Cash and Cash Equivalents, End of Period $ 232,948 $ 233,734
================== =================
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 306,899 $ 309,704
================== =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
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>
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 six months ended June 30,
1995 have been reclassified to conform to the 1996 presentation.
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 June 30, 1996. This unrealized gain represents
the increase in the market value of the securities from the date received by the
Partnership to June 30, 1996.
8
<PAGE>
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 six months ended June 30, 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 six months of 1996 increased by approximately
$72,400, or 6.2%, as compared to the first six months of 1995. Total Revenues
for the second quarter of 1996 increased by approximately $38,200, or 6.6%, over
the second quarter of 1995. Increased rents contributed an increase of
approximately $80,500 and $39,000 to total revenues for the six and three month
periods, respectively. The average rents for Olivewood and CRV for the three
months ended June 30, 1996 were $482 and $1,160, respectively, as compared to
$444 and $1,129, respectively, for the same period in 1995. The average physical
occupancy for Olivewood and CRV for the three months ended June 30, 1996 was
98.2% and 90.2%, respectively, as compared to 98.2% and 91.3%, respectively, for
the same period in 1995.
Total Expenses for the first six months of 1996 increased by approximately
$66,300, or 5.8%, as compared to the same period in 1995. Total Expenses for the
second quarter of 1996 increased by approximately $38,100, or 6.4%, over the
same period in 1995. Operating Expenses for the first six months of 1996
increased approximately $105,200, or 25.0%, as compared to the same period in
1995. Operating Expenses for the second quarter of 1996 increased by
approximately $67,500, or 32.1%, as compared to the same period in 1995. This
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 six months of 1996 increased approximately $18,200, or 21.6%, as
compared to the same period in 1995. Maintenance expenses for the second quarter
of 1996 increased approximately $10,900, or 21.4%, over the second quarter of
1995. This increase resulted from increased spending for replacement of tile,
carpet, refrigerators, interior painting, replacement of the "Up and About"
security system, 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 half of 1996 focused on interior replacement of carpet and
painting. Property Management Fees decreased approximately $22,700, or 35.3%,
for the first six months of 1996 as compared to the first six months of 1995.
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 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 on or before January 31, 1997. Administrative
Expenses decreased approximately $21,000, or 68%, for the first six months of
1996, as compared to the same period in 1995, as a result of a decrease in audit
fees for 1996.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following discussion regarding liquidity and capital resources should
be read in conjunction with the Balance Sheets as of June 30, 1996 and December
31, 1995 and the Statements of Cash Flows for the six months ended June 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 $149,000 at June 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 June 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 second 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 six months of 1996 amounted to approximately $49,000, which amount was
spent for carpet and tile replacement, cleaning draperies, hot water tanks, and
furniture and appliance replacements, replacement of the "Up and About" security
system, and vinyl siding repairs. Management anticipates approximately $124,000
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>
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>
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 August 9, 1996 By: /s/ John B. Bartling, Jr.
--------------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated August 9, 1996 By: /s/ David P. Blackmore
--------------------------------------------
David P. Blackmore
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated August 9, 1996 By: /s/ Ronald P. Koegler
--------------------------------------------
Ronald P. Koegler
Vice President and Treasurer
Dated August 9, 1996 By: /s/ Tamra L. Byers
--------------------------------------------
Tamra L. Byers
Vice President of Financial Operations
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 148,591
<SECURITIES> 171,035
<RECEIVABLES> 9,786
<ALLOWANCES> 4,188
<INVENTORY> 0
<CURRENT-ASSETS> 622,913
<PP&E> 10,559,971
<DEPRECIATION> 2,905,285
<TOTAL-ASSETS> 8,277,599
<CURRENT-LIABILITIES> 211,392
<BONDS> 7,557,389
0
0
<COMMON> 0
<OTHER-SE> 508,818
<TOTAL-LIABILITY-AND-EQUITY> 8,277,599
<SALES> 0
<TOTAL-REVENUES> 1,241,604
<CGS> 0
<TOTAL-COSTS> 913,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306,919
<INCOME-PRETAX> 21,570
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,570
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
