<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 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 incorporation or organization) (I.R.S. Employer
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
--- ---
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CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
INDEX
<TABLE>
<S> <C>
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 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
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
==== ====
ASSETS
<S> <C> <C>
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 (2,140,398) (2,069,033)
----------- -----------
6,892,409 6,963,774
Land 897,000 897,000
----------- -----------
7,789,409 7,860,774
Cash 61,556 56,349
Security deposit escrows 62,880 61,852
Tax and insurance escrows 95,447 108,305
Marketable securities (Note 2) 149,072 148,015
Replacement reserve 122,278 123,653
Accounts receivable, residents and other 19,720 12,348
Prepaid expenses 4,958 6,999
----------- -----------
$ 8,305,320 $ 8,378,295
=========== ===========
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
Accounts payable $ 2,105 $ 14,243
Accrued liabilities 153,134 154,965
Payables, general partner and affiliate 210,630 250,006
Accrued first mortgage interest 43,568 44,411
Residents' security deposits 62,677 61,127
Mortgage notes payable 5,880,650 5,910,523
----------- -----------
6,352,764 6,435,275
----------- -----------
Partners' equity:
General 295,809 295,639
Limited 1,533,049 1,524,740
Net unrealized holding gain on marketable securities 123,698 122,641
----------- -----------
1,952,556 1,943,020
----------- -----------
$ 8,305,320 $ 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 MONTHS
ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended
--------------
March 31, March 31,
1996 1995
==== ====
<S> <C> <C>
Revenues:
Rents $416,209 $ 379,822
Interest income 2,487 3,593
Other 6,639 4,712
-------- ---------
Total revenues 425,335 388,127
-------- ---------
Expenses:
Operating expenses 83,806 79,081
Interest expense 132,237 143,443
Depreciation and amortization 71,365 71,320
Real estate taxes 36,860 36,420
Maintenance 59,762 51,380
Insurance 6,181 5,991
Property management fees 20,299 18,826
Administrative 6,346 13,100
-------- ---------
Total expenses 416,856 419,561
-------- ---------
Net income/(loss) $ 8,479 $ (31,434)
======== =========
Net income/(loss) allocated to general partner (2%) $ 170 $ (629)
======== =========
Net income/(loss) allocated to limited partners (98%) $ 8,309 $ (30,805)
======== =========
Net income/(loss) per limited partnership unit $ 0.02 $ (0.09)
======== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Net Unrealized
Limited Holding Gain
Partnership General Limited on Marketable
Units Partner 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 170 8,309 8,479
Unrealized holding gain on
marketable securities 0 0 1,057 1,057
------- -------- ---------- -------- ----------
Balance, March 31, 1996 348,000 $295,809 $1,533,049 $123,698 $1,952,556
======= ======== ========== ======== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
CARDINAL INDUSTRIES INCOME PROPERTIES II
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
==== ====
<S> <C> <C>
Cash Flows from Operating activities:
Net Income/(Loss) $ 8,479 $ (31,434)
Adjustments to reconcile Net Income/(Loss) to Cash
provided by/(used in) Operating activities:
Depreciation and Amortization 71,365 71,320
Changes in Assets and Liabilities:
Accounts Receivable, Residents and Other (7,372) (4,946)
Prepaid Expenses 2,041 (22,667)
Accounts Payable (12,138) 2,496
Accrued Liabilities (1,831) (32,853)
Payables, General Partner and Affiliates 1,202 1,327
Accrued First Mortgage Interest (843) (1,330)
--------- ---------
Cash provided by/(used in) Operating activities 60,903 (18,087)
--------- ---------
Cash Flows from Investing activities:
Release from/(Deposits to) Replacement Escrows, net 1,375 (4,693)
Security Deposit Liabilities 1,550 (2,760)
Residents' Security Deposits (1,028) 2,101
--------- ---------
Cash provided by (used in) Investing Activities 1,897 (5,352)
--------- ---------
Cash Flows from Financing activities:
Mortgage Principal payments (29,873) (25,786)
Net advances (to)/from General Partner (40,578) (30,426)
--------- ---------
Cash used in Financing activities (70,451) (56,212)
--------- ---------
Net decrease in Cash (7,651) (79,651)
Cash and Escrows, beginning of period 164,654 216,529
--------- ---------
Cash and Escrows, end of period $ 157,003 $ 136,878
========= =========
Supplemental Disclosure of Cash Flow information:
Cash paid for Interest $ 131,394 $ 144,773
========= =========
</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
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 "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 General Partner. The Partnership's purchase of the
properties was completed October 28, 1988. All material inter-project
transactions and balances have been eliminated.
NOTE 2 - MARKETABLE SECURITIES
The Partnership received shares of the General Partner's common stock,
without par value ("Common 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.
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 three months ended March 31, 1996 and 1995
and significant developments affecting the 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").
RESULTS OF OPERATIONS
The following discussion regarding the results of operations should be read
in conjunction with the Statement of Operations.
Total revenues for the first three months of 1996 increased by approximately
$37,000, or 9.6%, over the first three months of 1995. Rents contributed an
increase of almost $36,000 to total revenues for such period. The average
physical occupancy for all three properties combined for the first three months
ended March 31, 1996 was 94.2%, as compared to 93.1%, for the same period in
1995. The average rents for the three months ended March 31, 1996 were $448, as
compared to $426 for the same period in 1995.
Total expenses for the first quarter of 1996 decreased by approximately
$2,700, or less than 1%, as compared to the comparable period in 1995.
Operating expenses increased approximately $4,700, or 5.9%, as compared to the
same period in 1995. This increase in operating expenses was due to performance
bonuses paid to employees of Sky Ridge in the amount of $6,623. Interest
expense decreased approximately $11,000, or 7.8%, as compared to the first
quarter of 1995, which decrease resulted from a reduction in the interest rate
on the advance from the General Partner to allow the Partnership to refinance
its debt in 1994. Maintenance expenses increased substantially as the
properties spent approximately $8,400, or 16.3%, more on maintenance in the
first quarter of 1996 than the first quarter of 1995. This increase is
attributable to the maintenance items identified in the engineering report done
for the refinancing in March, 1994, which items were to be completed subsequent
to the loan closing. 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 $6,800 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.
Net income per limited partnership unit is based on 348,000 limited
partnership units outstanding at March 31, 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; (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.
8
<PAGE> 9
Cash, exclusive of Security Deposit Escrows and Tax and Insurance Escrows,
was approximately $62,000 at March 31, 1996. The 8,458 shares of Cardinal Realty
Services, Inc. ("Cardinal") common stock, without par value ("Cardinal Stock"),
held by the Partnership has a fair market value of $149,072 based on the last
quoted price of $17.625 on 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
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 three months of 1996 amounted to approximately $28,000 which was incurred
primarily for painting and replacement of refrigerators, carpet, vinyl,
wallcovering, window fixtures and miscellaneous parts. The Replacement Reserve
escrow was approximately $122,000 at March 31, 1996. In addition, approximately
$27 per apartment unit each month is being distributed to the Replacement
Reserve escrow, which will aggregate approximately $78,000 over the remaining
nine months of the Partnership's fiscal year. The Partnership anticipates
approximately $182,000 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
None
(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
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
11
<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> 61,556
<SECURITIES> 149,072
<RECEIVABLES> 52,104
<ALLOWANCES> 32,384
<INVENTORY> 0
<CURRENT-ASSETS> 515,911
<PP&E> 9,929,807
<DEPRECIATION> 2,140,398
<TOTAL-ASSETS> 8,305,320
<CURRENT-LIABILITIES> 261,484
<BONDS> 6,091,280
0
0
<COMMON> 0
<OTHER-SE> 1,952,556
<TOTAL-LIABILITY-AND-EQUITY> 8,305,320
<SALES> 0
<TOTAL-REVENUES> 425,335
<CGS> 0
<TOTAL-COSTS> 417,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,237
<INCOME-PRETAX> 8,479
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,479
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
