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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 33-22648
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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 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
---
Page 1 of 12 sequentially numbered pages
Exhibit Index on page 10.
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<PAGE>
2
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page #
<S> <C>
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 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
</TABLE>
2
<PAGE>
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
September 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 (2,283,128) (2,069,033)
---------------- -----------------
6,749,679 6,963,774
Land 897,000 897,000
---------------- -----------------
7,646,679 7,860,774
Cash 101,214 56,349
Security Deposit Escrows 64,087 61,852
Tax and Insurance Escrows 86,356 108,305
Marketable Securities (Note 2) 167,046 148,015
Replacement Reserve Escrows 136,993 123,653
Accounts Receivable, Residents and Other 11,846 12,348
Prepaid Expenses 10,844 6,999
---------------- -----------------
$ 8,225,065 $ 8,378,295
================ =================
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 6,980 $ 14,243
Accrued Liabilities 144,043 154,965
Payables, Managing General Partner and Affiliates 97,304 250,006
Accrued First Mortgage Interest 42,623 44,411
Residents' Security Deposits 63,553 61,127
Mortgage Notes Payable 5,818,987 5,910,523
---------------- -----------------
6,173,490 6,435,275
---------------- -----------------
Partners' Equity:
General 297,429 295,639
Limited 1,612,474 1,524,740
Net Unrealized Holding Gain on Marketable Securities 141,672 122,641
---------------- -----------------
2,051,575 1,943,020
---------------- -----------------
$ 8,225,065 $ 8,378,295
================ =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
4
CARDINAL INDUSTRIES INCOME PROPERTIES II
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 $ 433,284 $ 416,282 $ 1,278,698 $ 1,202,471
Interest Income 3,352 2,373 9,872 9,928
Other 6,400 5,077 17,304 14,959
--------------- --------------- --------------- -----------------
Total Revenues 443,036 423,732 1,305,874 1,227,358
--------------- --------------- --------------- -----------------
Expenses:
Operating Expenses 62,327 67,204 207,762 210,852
Interest Expense 128,842 141,679 393,414 427,653
Depreciation and Amortization 71,363 71,319 214,095 213,958
Real Estate Taxes 36,860 36,431 110,581 109,901
Maintenance 71,583 108,855 190,208 251,172
Insurance 6,181 5,990 18,544 17,971
Property Management Fees 21,482 20,324 63,721 59,335
Administrative 2,081 2,033 18,025 32,560
--------------- --------------- --------------- -----------------
Total Expenses 400,719 453,835 1,216,350 1,323,402
--------------- --------------- --------------- -----------------
Net Income/(Loss) $ 42,317 $ (30,103) $ 89,524 $ (96,044)
=============== =============== =============== =================
Net Income/(Loss) Allocated to General Partners (2%) $ 846 $ (602) $ 1,790 $ (1,921)
=============== =============== =============== =================
Net Income/(Loss) Allocated to Limited Partners (98%) $ 41,471 $ (29,501) $ 87,734 $ (94,123)
=============== =============== =============== =================
Net Income/(Loss) per Limited Partnership Unit $ 0.12 $ (0.08) $ 0.25 $ (0.27)
=============== =============== =============== =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
5
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Net
Unrealized
Holding
Gain
Limited on
Partnership General Limited 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 1,790 87,734 89,524
Unrealized Holding Gain on
on Marketable Securities 0 0 19,031 19,031
------------- -------------- ---------------- ---------------- ----------------
Balance, September 30, 1996 348,000 $ 297,429 $ 1,612,474 $ 141,672 $ 2,051,575
============= ============== ================ ================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
6
CARDINAL INDUSTRIES INCOME PROPERTIES II
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) $ 89,524 $ (96,044)
Adjustments to reconcile Net Income/(Loss) to Cash
Provided by Operating activities:
Depreciation and Amortization 214,095 213,958
Changes in Assets and Liabilities:
Accounts Receivable, Residents and Other 502 (2,998)
Prepaid Expenses (3,845) (4,853)
Accounts Payable (7,263) 22,167
Accrued Liabilities (10,922) (25,655)
Payables, Managing General Partner and Affiliates 3,236 (18,041)
Accrued First Mortgage Interest (1,788) (756)
------------------ ------------------
Cash Provided by Operating Activities 283,539 87,778
------------------ ------------------
Cash Flows from Investing Activities:
Release from/(Deposits to) Replacement Escrows, Net (13,340) 28,564
Security Deposit Liabilities 2,426 2,656
Residents' Security Deposits (2,235) (1,192)
------------------ ------------------
Cash Provided by (Used in) Investing Activities (13,149) 30,028
------------------ ------------------
Cash Flows from Financing Activities:
Mortgage Principal Payments (91,536) (78,088)
Net Advances (Repaid to)/from Managing General Partners (155,938) (91,244)
------------------ ------------------
Cash Used in Financing Activities (247,474) (169,332)
------------------ ------------------
Net Increase/(Decrease) in Cash, Tax and Insurance Escrows 22,916 (51,526)
Cash, Tax and Insurance Escrows, Beginning of Period 164,654 216,529
------------------ ------------------
Cash, Tax and Insurance Escrows, End of Period $ 187,570 $ 165,003
================== ==================
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 392,491 $ 426,897
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
7
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. ("Cardinal" or 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 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's common stock, without par
value ("Cardinal Stock"), during 1993 in connection with the settlement of prior
bankruptcy claims with the Managing 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.
7
<PAGE>
8
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 nine and three months ended September 30,
1996 and 1995 and significant developments affecting the Partnership's financial
condition since the end of 1995. The following discussion should be read in
conjunction with the Partnership's historical financial statements. 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" and,
together with Sky Ridge and Meadowood, the "Properties").
RESULTS OF OPERATIONS
The following discussion regarding the results of operations should be
read in conjunction with the historical financial statements of the Partnership.
Total revenues for the first nine months of 1996 increased by
approximately $78,500, or 6.4%, over the first nine months of 1995. Rents
contributed an increase of approximately $76,000 to total revenues for such
period. Total revenues for the third quarter of 1996 increased by approximately
$19,300, or 4.6%, over the third quarter of 1995. Rents contributed an increase
of approximately $17,000 to total revenues for such period. The average physical
occupancy for all three properties combined for the nine and three months ended
September 30, 1996 was 96.2% and 95.6%, respectively, as compared to 94.8% and
96%, respectively, for the same periods in 1995. The average rents for the nine
and three months ended September 30, 1996 were $457 and $459, respectively, as
compared to $430 and $435, respectively, for the same periods in 1995.
Total expenses for the first nine months of 1996 decreased by
approximately $107,000, or 8.1%, as compared to the same period in 1995. Total
expenses for the third quarter of 1996 decreased by approximately $53,000, or
11.7%. Operating expenses for the nine and three month periods ended September
30, 1996 decreased approximately $3,100, or 1.5%, and $4,900, or 7.3%,
respectively, as compared to the same periods in 1995. This decrease in
operating expenses was due to a reduction in water/sewer expense of
approximately $3,700 at Sky Ridge which resulted from the recognition and
reversal of overcharges for such services, previously billed and paid on account
of the third quarter of 1995. Interest expense for the nine and three month
periods ended September 30, 1996 decreased approximately $34,300, or 8.0% and
$13,000 or 9.1% , respectively, as compared to the same periods in 1995. The
decrease resulted from a reduction in the interest rate on, and the principle
amount of, outstanding advances from the Managing General Partner. Maintenance
expenses for the nine and three month periods ended September 30, 1996 decreased
substantially as the Properties spent approximately $61,000, or 24.3% and
$37,000, or 34.2%, less on maintenance as compared to the same periods in 1995.
The reason for the substantial decrease is that certain significant improvements
were undertaken at the Properties in the first nine months of 1995 which were
not necessary for the same period in 1996. A large part of the maintenance
expenses were paid from funds escrowed in 1994 when the first mortgages on the
Properties were refinanced, and not from operations (See Liquidity and Capital
Resources). Administrative expenses decreased approximately $14,600 in the first
nine months of 1996, as compared to the same period 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 September 30, 1996.
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.
8
<PAGE>
9
The principal sources of liquidity for the Partnership are (i) cash and
cash equivalents; (ii) funds from the Replacement Reserve escrow; and (iii) 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 at least the next two years.
Cash, exclusive of Security Deposit Escrows and Tax and Insurance
Escrows, was approximately $101,000 at September 30, 1996. The 8,458 shares of
Cardinal Stock held by the Partnership had a fair market value of $167,046 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 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 nine months of 1996 amounted to approximately $80,000 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 $137,000 at September 30, 1996. In addition,
approximately $27 per apartment unit each month is being deposited in the
Replacement Reserve escrow, which will aggregate approximately $26,000 over the
remaining three months of the Partnership's fiscal year. The Partnership
anticipates approximately $35,000 of major maintenance and replacement
expenditures for the balance of 1996 will be incurred.
9
<PAGE>
10
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 12.
</TABLE>
(b) Reports on Form 8-K
None
10
<PAGE>
11
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
By: CARDINAL REALTY SERVICES, INC.,
AS MANAGING 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
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
12
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> 101,214
<SECURITIES> 167,046
<RECEIVABLES> 37,531
<ALLOWANCES> 25,685
<INVENTORY> 0
<CURRENT-ASSETS> 578,386
<PP&E> 9,929,807
<DEPRECIATION> 2,283,128
<TOTAL-ASSETS> 8,225,065
<CURRENT-LIABILITIES> 354,503
<BONDS> 5,818,987
0
0
<COMMON> 0
<OTHER-SE> 2,051,575
<TOTAL-LIABILITY-AND-EQUITY> 8,225,065
<SALES> 0
<TOTAL-REVENUES> 1,305,874
<CGS> 0
<TOTAL-COSTS> 1,216,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,414
<INCOME-PRETAX> 89,524
<INCOME-TAX> 0
<INCOME-CONTINUING> 89,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,524
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
