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 33-22648
CARDINAL INDUSTRIES INCOME PROPERTIES II LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1247128
- ------------------------------------------------ --------------------
(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
--- ---
Page 1 of 11 sequentially numbered pages
Exhibit Index on Page 10.
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION
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 Financial Statements.....................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................10
ITEM 2. CHANGES IN SECURITIES..............................................10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................10
ITEM 5. OTHER INFORMATION..................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................10
SIGNATURES...................................................................11
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
================ =================
<S> <C> <C>
ASSETS
Rental Properties:
Buildings and Improvements $ 8,436,061 $ 8,436,061
Personal Property 596,746 596,746
---------------- -----------------
9,032,807 9,032,807
Less Accumulated Depreciation (2,211,763) (2,069,033)
---------------- -----------------
6,821,044 6,963,774
Land 897,000 897,000
---------------- -----------------
7,718,044 7,860,774
Cash 78,233 56,349
Security Deposit Escrows 64,087 61,852
Tax and Insurance Escrows 104,873 108,305
Marketable Securities (Note 2) 167,046 148,015
Replacement Reserve Escrows 128,395 123,653
Accounts Receivable, Residents and Other 12,813 12,348
Prepaid Expenses 9,071 6,999
---------------- -----------------
$ 8,282,562 $ 8,378,295
================ =================
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 2,417 $ 14,243
Accrued Liabilities 155,385 154,965
Payables, Managing General Partner and Affiliates 159,989 250,006
Accrued First Mortgage Interest 43,085 44,411
Residents' Security Deposits 62,301 61,127
Mortgage Notes Payable 5,850,126 5,910,523
---------------- -----------------
6,273,303 6,435,275
---------------- -----------------
Partners' Equity:
General 296,583 295,639
Limited 1,571,004 1,524,740
Net Unrealized Holding Gain on Marketable Securities 141,672 122,641
---------------- -----------------
2,009,259 1,943,020
---------------- -----------------
$ 8,282,562 $ 8,378,295
================ =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
----------------------------------- -----------------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Rents $ 429,205 $ 406,367 $ 845,414 $ 786,189
Interest Income 4,033 3,962 6,520 7,555
Other 4,265 2,814 10,904 9,883
--------------- --------------- --------------- -----------------
Total Revenues 437,503 413,143 862,838 803,627
--------------- --------------- --------------- -----------------
Expenses:
Operating Expenses 61,629 70,682 145,436 143,649
Interest Expense 132,335 142,531 264,572 285,974
Depreciation and Amortization 71,367 71,319 142,730 142,639
Real Estate Taxes 36,861 37,050 73,721 73,470
Maintenance 58,863 82,466 118,625 142,317
Insurance 6,182 5,990 12,363 11,981
Property Management Fees 21,940 20,185 42,239 39,011
Administrative 9,598 17,427 15,944 30,527
--------------- --------------- --------------- -----------------
Total Expenses 398,775 447,650 815,630 869,568
--------------- --------------- --------------- -----------------
Net Income/(Loss) $ 38,728 $ (34,507) $ 47,208 $ (65,941)
=============== =============== =============== =================
Net Income/(Loss) Allocated to General Partners (2%) $ 775 $ (690) $ 944 $ (1,319)
=============== =============== =============== =================
Net Income/(Loss) Allocated to Limited Partners (98%) $ 37,953 $ (33,817) $ 46,264 $ (64,622)
=============== =============== =============== =================
Net Income/(Loss) per Limited Partnership Unit $ 0.11 $ (0.10) $ 0.13 $ (0.19)
=============== =============== =============== =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Net Unrealized
Limited Holding Gain
Partnership General Limited on Marketable
Units Partners Partners Securities Total
============= ============== ================ ================ ================
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 348,000 $ 295,639 $ 1,524,740 $ 122,641 $ 1,943,020
Net Income 944 46,264 47,208
Unrealized Holding Gain on
Marketable Securities 0 0 19,031 19,031
------------- -------------- ---------------- ---------------- ----------------
Balance, June 30, 1996 348,000 $ 296,583 $ 1,571,004 $ 141,672 $ 2,009,259
============= ============== ================ ================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
================== ==================
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income/(Loss) $ 47,208 $ (65,941)
Adjustments to reconcile Net Income/(Loss) to Cash
Provided by/(used in) Operating activities:
Depreciation and Amortization 142,730 142,639
Changes in Assets and Liabilities:
Accounts Receivable, Residents and Other (465) 5,366
Prepaid Expenses (2,072) (15,556)
Accounts Payable (11,826) (8,907)
Accrued Liabilities 420 (57,568)
Payables, Managing General Partner and Affiliates 2,180 (16,615)
Accrued First Mortgage Interest (1,326) (3,124)
------------------ ------------------
Cash Provided by/(used in) Operating Activities 176,849 (19,706)
------------------ ------------------
Cash Flows from Investing Activities:
Release from/(Deposits to) Replacement Escrows, Net (4,742) (3,618)
Security Deposit Liabilities 1,174 1,824
Residents' Security Deposits (2,235) (1,836)
------------------ ------------------
Cash Provided by (Used in) Investing Activities (5,803) (3,630)
------------------ ------------------
Cash Flows from Financing Activities:
Mortgage Principal Payments (60,397) (51,574)
Net Advances (Repaid to)/from Managing General Partner (92,197) (50,979)
------------------ ------------------
Cash Used in Financing Activities (152,594) (102,553)
------------------ ------------------
Net Increase/(Decrease) in Cash 18,452 (125,889)
Cash and Escrows, Beginning of Period 164,654 216,529
------------------ ------------------
Cash and Escrows, End of Period $ 183,106 $ 90,640
================== ==================
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 264,741 $ 289,098
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
NOTES TO 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. 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 II Limited Partnership (the
"Partnership"), a Delaware limited partnership, was formed in June, 1988 for the
purpose of acquiring from Cardinal Industries, Inc., predecessor by name change
to Cardinal Realty Services, Inc. (the "Managing General Partner"), or its
affiliates, a 120-unit residential apartment complex in Woodstock, Georgia ("Sky
Ridge Apartments"), a 106-unit residential apartment complex in Forest Park,
Ohio ("Meadowood Apartments") and a 97-unit residential apartment complex in
Berea, Ohio ("Tabor Ridge Apartments"). The Partnership completed an offering of
348,000 units of limited partnership interest at a public offering price of $10
per unit for a total of $3,480,000. The net proceeds from the offering were used
by the Partnership to purchase the above-mentioned properties from affiliated
partnerships of the Managing General Partner. The Partnership's purchase of the
properties was completed October 28, 1988. All material inter-project
transactions and balances have been eliminated.
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 the General Partner's 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion explains material changes in the Partnership's
results of operations, comparing the six and three months ended June 30, 1996
and 1995 and significant developments affecting the Partnership's financial
condition since the end of 1995. The Registrant conducts the business and
operations of Sky Ridge Apartments of Woodstock, Georgia ("Sky Ridge"),
Meadowood Apartments of Forest Park, Ohio ("Meadowood"), and Tabor Ridge
Apartments of Berea, Ohio ("Tabor Ridge") (Sky Ridge, Meadowood and Tabor Ridge
are collectively referred to herein as the "Properties").
RESULTS OF OPERATIONS
The following discussion regarding the results of operations should be
read in conjunction with the Statements of Operations.
Total Revenues for the first six months of 1996 increased by
approximately $59,200, or 7.4%, over the first six months of 1995. Rents
contributed an increase of approximately $59,000 to Total Revenues for such
period. Total Revenues for the second quarter of 1996 increased by approximately
$24,300, or 5.9%, over the second quarter of 1995. Rents contributed an increase
of approximately $23,000 to Total Revenues for such period. The average physical
occupancy for the Properties for the six and three months ended June 30, 1996
was 95.5% and 96.8%, respectively, as compared to 94.1% and 95.1% ,
respectively, for the same periods in 1995. The average rents for the six and
three months ended June 30, 1996 were $452 and $456, respectively, as compared
to $428 and $430, respectively, for the same periods in 1995.
Total Expenses for the six and three months ended June 30, 1996
decreased by approximately $54,000 and $49,000, respectively, or 6.2% and 10.9%,
respectively, as compared to the comparable periods in 1995. Operating expenses
for the second quarter of 1996 decreased approximately $9,000, or 12.8%, as
compared to the same period in 1995. This decrease in operating expenses was due
to a reduction in water/sewer expense of approximately $4,200 at Sky Ridge which
resulted from the recognition and reversal of overcharges for such services,
which occurred in the third quarter of 1995. Interest Expense for the first six
and three months of 1996 decreased approximately $21,400 and $10,200,
respectively, or 7.5% and 7.2%, respectively, as compared to the first six and
three months of 1995, which decrease resulted from a reduction in the interest
rate in the third quarter of 1995 on the advance from the Managing General
Partner. Maintenance expenses for the six and three months ended June 30, 1996
decreased substantially as the Properties spent approximately $23,700 and
$23,600, respectively, or 16.7% and 28.6%, respectively, less on maintenance
than the comparable periods of 1995. The reason for this substantial decrease is
that certain significant improvements were undertaken at the Properties in the
first six months of 1995 which were not necessary for the same period in 1996,
such as the installation of a sign and repairs of sidewalks at Sky Ridge, the
painting of exterior doors at Meadowood and the replacement of asphalt at Tabor
Ridge. However, due to inclement weather at the Properties in the first six
months of 1996, certain contemplated repairs were not completed, which may
increase maintenance expenses in the third and fourth quarters of 1996 compared
to the same periods in 1995. A large part of the maintenance expenses were paid
from funds set aside at the time of refinance, and not from operations (SEE
LIQUIDITY AND CAPITAL RESOURCES). Administrative expenses decreased
approximately $14,600 and $7,800, respectively, during six and three months
ended June 30, 1996, as compared to the same periods in 1995, as a result of a
decrease in audit fees in 1996.
Net income per limited partnership unit is based on 348,000 limited
partnership units outstanding at June 30, 1996.
8
<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; (ii) funds from the Replacement Reserve Escrow; and (iii) Cash
Flows Provided by Operating Activities. The Partnership anticipates that these
sources will be adequate to meet the reasonably foreseeable capital and
liquidity needs of the Partnership for at least the next two years.
Cash, exclusive of Security Deposit Escrows and Tax and Insurance
Escrows, was approximately $78,000 at June 30, 1996. The 8,458 shares of
Cardinal Realty Services, Inc. ("Cardinal") common stock, without par value
("Cardinal Stock"), held by the Partnership had a fair market value on June 30,
1996 of approximately $167,000 based on the last quoted price of $19.75 on 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 held 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 Managing 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 $48,000 which was incurred
primarily for painting and replacement of refrigerators, ranges, carpet, vinyl,
wallcovering, window fixtures and miscellaneous parts. The Replacement Reserve
Escrow was approximately $128,000 at June 30, 1996. In addition, approximately
$27 per apartment unit each month is being applied from Total Revenues to the
Replacement Reserve Escrow, which will aggregate approximately $52,000 over the
remaining six months of the Partnership's fiscal year. The Partnership
anticipates approximately $163,000 of major maintenance and replacement
expenditures for the balance of 1996 will be incurred.
9
<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
10
<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 II LIMITED PARTNERSHIP
CARDINAL REALTY SERVICES, INC.,
AS MANAGING 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
11
<PAGE>
<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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 78,233
<SECURITIES> 167,046
<RECEIVABLES> 34,634
<ALLOWANCES> 21,821
<INVENTORY> 0
<CURRENT-ASSETS> 564,518
<PP&E> 9,929,807
<DEPRECIATION> 2,211,763
<TOTAL-ASSETS> 8,282,562
<CURRENT-LIABILITIES> 263,188
<BONDS> 6,010,115
0
0
<COMMON> 0
<OTHER-SE> 2,099,259
<TOTAL-LIABILITY-AND-EQUITY> 8,282,562
<SALES> 0
<TOTAL-REVENUES> 862,838
<CGS> 0
<TOTAL-COSTS> 551,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,572
<INCOME-PRETAX> 47,208
<INCOME-TAX> 0
<INCOME-CONTINUING> 47,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,208
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
