-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RV5lZ256vu12LgnMmb488DDTcTCDA7BED0r9pmcKN44PgaK1xBlHvv2skFmqa8w4 CjEGX15eIvyjaGgmruyl8A== /in/edgar/work/20000814/0000803026-00-000016/0000803026-00-000016.txt : 20000921 0000803026-00-000016.hdr.sgml : 20000921 ACCESSION NUMBER: 0000803026-00-000016 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROMETHEUS INCOME PARTNERS CENTRAL INDEX KEY: 0000803026 STANDARD INDUSTRIAL CLASSIFICATION: [6500 ] IRS NUMBER: 770082138 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-16950 FILM NUMBER: 698922 BUSINESS ADDRESS: STREET 1: 350 BRIDGE PKWY CITY: REDWOOD CITY STATE: CA ZIP: 94065 BUSINESS PHONE: 6505965300 FORMER COMPANY: FORMER CONFORMED NAME: PROMETHEUS DEVELOPMENT INCOME PARTNERS DATE OF NAME CHANGE: 19861229 10-Q/A 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended June 30, 2000 Commission File No. 000-16950 Prometheus Income Partners, a California Limited Partnership (Exact name of registrant as specified in its charter) California 77-0082138 (State or other jurisdiction of (IRS Employer ID Number) incorporation or organization) 350 Bridge Parkway Redwood City, California 94065-1517 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code: (650) 596-5300 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 [ ] PART I: FINANCIAL INFORMATION Item 1. Condensed Financial Statements The accompanying unaudited financial statements should be read in conjunction with the Form 10-K filed by the Partnership for the year ended December 31, 1999. These statements have been prepared in accordance with the instructions of the Securities and Exchange Commission Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Historically the Registrant's Form 10-Q filings have not made any adjustments for the capitalization of improvements except in conjunction with the year-end financial statements. This Form 10-Q reflects the financial results on a basis consistent with the Registrant's Form 10-K filing. While the financial information is unaudited, in the opinion of the Partnership, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. PROMETHEUS INCOME PARTNERS a California Limited Partnership BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999 (Unaudited and in Thousands, Except for Unit Data) June 30, December 31, 2000 1999 -------- --------- ASSETS Real Estate: Land, buildings and improvements $ 30,502 $ 30,288 Accumulated depreciation (8,531) (8,183) -------- ------- 21,971 22,105 Cash and cash equivalents 2,201 1,942 Restricted cash 5,097 4,558 Deferred expenses, net 224 239 Accounts receivable and other assets 61 29 -------- ------- Total assets $ 29,554 $ 28,873 -------- -------- -------- -------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Notes payable $ 26,036 $ 26,188 Payables and accrued liabilities 278 323 -------- -------- Total liabilities 26,314 26,511 -------- -------- General partner deficit (368) (378) Limited partners' capital 18,995 limited partnership units issued and outstanding 3,608 2,740 -------- -------- Total partners' capital 3,240 2,362 -------- -------- Total liabilities and partners' capital $ 29,554 $ 28,873 -------- -------- -------- -------- The accompanying notes are an integral part of these financial statements. PROMETHEUS INCOME PARTNERS a California Limited Partnership STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited and in Thousands, Except for Unit Data) 2000 1999 ------- ------- REVENUES Rental $ 1,595 $ 1,397 Other income 24 50 Interest income 104 64 ------- ------- Total revenues 1,723 1,511 ------- ------ EXPENSES Interest and amortization 465 470 Operating 405 382 Depreciation 174 144 Administrative 10 17 Payments to general partner and affiliates: Management fees 104 74 Operating and administrative 138 125 ------- ------ Total expenses 1,296 1,212 ------- ------ NET INCOME $ 427 $ 299 ------- ------ ------- ------ Net income per $1,000 limited partnership unit $ 22 $ 16 ------- ------ ------- ------ Number of limited partnership units used in computation 18,995 18,995 ------- ------ ------- ------ The accompanying notes are an integral part of these financial statements. PROMETHEUS INCOME PARTNERS a California Limited Partnership STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited and in Thousands, Except for Unit Data) 2000 1999 ------- ------- REVENUES Rental $ 3,115 $ 2,797 Other income 51 90 Interest income 218 122 ------- ------- Total revenues 3,384 3,009 ------- ------- EXPENSES Interest and amortization 933 861 Operating 773 624 Depreciation 348 288 Administrative 23 27 Payments to general partner and affiliates: Management fees 182 147 Operating and administrative 247 227 ------- ------ Total expenses 2,506 2,174 ------- ------- NET INCOME $ 878 $ 835 ------- ------- ------- ------- Net income per $1,000 limited partnership unit $ 46 $ 44 ------- ------- ------- ------- Number of limited partnership units used in computation 18,995 18,995 ------- ------- ------- ------- The accompanying notes are an integral part of these financial statements. PROMETHEUS INCOME PARTNERS a California Limited Partnership STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited and in Thousands) 2000 1999 ------ ------- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 878 $ 835 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 348 288 Amortization 15 15 (Decrease) increase in accounts receivable and other assets (32) 43 Decrease in payables and accrued liabilities (45) (237) ------- ------ Net cash provided by operating activities 1,164 944 ------ ------ CASH FLOW FROM INVESTING ACTIVITIES Increase in fixed asset additions (214) (132) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES Increase in restricted cash (539) (478) Principal reductions on notes payable (152) (141) ------- ------ Net cash used for financing activities (691) (619) ------- ------ Net increase in cash and cash equivalents 259 193 Cash and cash equivalents at beginning of year 1,942 1,183 ------- ------- Cash and cash equivalents at end of period $ 2,201 $ 1,376 ------- ------- ------- ------- The accompanying notes are an integral part of these financial statements PROMETHEUS INCOME PARTNERS a California Limited Partnership NOTES TO FINANCIAL STATEMENTS 1. THE PARTNERSHIP Prometheus Income Partners, a California Limited Partnership (the "Partnership"), was formed to construct, invest in, operate and ultimately sell two multi-family apartment projects ("Properties"), Alderwood Apartments ("Alderwood") and Timberleaf Apartments ("Timberleaf"), located in Santa Clara, California. The General Partner is Prometheus Development Co., Inc., a California corporation. The financial information has been restated to reflect capitalization of improvements on a basis consistent with the practice followed annually. The financial information included herein at June 30, 2000 and for the three and six months ended June 30, 2000 and 1999 is unaudited and, in the opinion of the Partnership, reflects all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position as of those dates and the results of operations for those periods. Management fees and payments to the General Partner and affiliates represent compensation for services provided and certain expense requirements, at cost, in accordance with the Partnership Agreement. The information in the Balance Sheets at December 31, 1999 was derived from the Partnership's audited annual report for 1999. Partnership profits, losses and distributions are allocated among the partners based on the provisions of the Partnership Agreement which generally provide for allocations to begin when the partners are admitted to the Partnership. 2. INCOME TAXES No income taxes are levied on the Partnership; rather, such taxes are levied on the individual partners. Consequently, no provision or liability for federal or California income taxes has been reflected in the accompanying financial statements. The net income or loss for financial reporting purposes differs from the net income or loss for income tax reporting purposes primarily due to differences in useful lives and depreciation methods for building and improvements and amortization of construction period interest and taxes. 3. CONSTRUCTION DEFECTS The General Partner has learned that the type of hardboard siding that was used at both Alderwood and Timberleaf is failing to perform as expected in a number of projects in various parts of the United States. Two lawsuits have been filed against the siding manufacture, the general contractor, the subcontractors and the architects by the Partnership, one for each property. Moisture has accumulated in the walls of the apartment projects through a combination of construction defects and endemic problems with the hardboard siding. Sufficient moisture over time causes rot and decay in the wood, framing and siding which necessitates repairs which, in some cases, are structural in nature. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONSTRUCTION DEFECTS (CONTINUED) At this time, experts on behalf of the Partnership have concluded the initial visual inspection, the scientific testing of the siding material and destructive investigation. The defendants have also completed their destructive investigation. Additionally, certain structural issues caused by the defects in the hardboard siding were uncovered at Timberleaf and were rebuilt as part of the immediate repair process. The General Partner has subsequently determined that additional immediate repairs were necessary. The repairs necessitated immediately (with the exception of roof repairs noted below) have been completed and the General Partner continues to monitor the condition of the property to look for any other signs of rot and decay which would necessitate immediate attention and repair. Rot and decay, which form inside the wall, are not visible, and until rot and decay have caused changes in the physical appearance of the exterior of the buildings, it is difficult to ascertain all the locations where rot and decay exist. In addition to the hardboard siding problems, routine roofing inspection has uncovered failing roof substrate at dormer roof assemblies for both Alderwood and Timberleaf. The cause has been traced to inadequate venting of the roof space. Inadequate venting leads to condensation in roof areas. This has been sufficient to cause deflection and decay of the roof and its structural support, requiring replacement. In addition to the hardboard siding problems, the roof repair design and repair bids have been received and are currently being evaluated and a repair scope refined so this work may proceed as necessary. The passage of time and ongoing investigations have resulted in a number of deficiencies, in addition to the siding material, being uncovered. Issues related to the hardboard siding and other construction defects are currently referred to as Construction Defects as this more accurately reflects the scope of work being undertaken at this time. For Alderwood, the estimated cost of repair, including siding and roof repairs and a component for projected lost rents, but not including attorney's fees or litigation costs, range from $9 to 10 million. The total claimed damages at this point are $11,239,280. For Timberleaf, the estimated cost of repair, including siding and roof repairs and a component for projected lost rents, but not including attorney's fees or litigation costs, range from $6 to 7 million. The total claimed damages at this point are $8,352,330. Both cases continue to be under the supervision of a Special Master who is appointed and empowered by the court to assist in resolving the cases. The investigation and other subsequent discoveries that will occur are ordered by the Special Master on behalf of both plaintiffs and defendants in an effort to come to a settlement. Destructive investigation, completed under the order of the Special Master, has produced a preliminary issues list which the Special Master will use in attempting to prompt a settlement from the defendants. This information is protected by the Special Master and is not for general distribution. It is possible that a settlement of pending litigation can occur anytime, but the General Partner believes this unlikely. In the absence of a settlement, the Special Master eventually will order a trial date to be set. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONSTRUCTION DEFECTS (CONTINUED) A trial date has not yet been ordered by the Special Master. The General Partner has and is demanding a trial date be set so this matter can be resolved. However, even if a trial date is set it will still likely take two to three years or more to complete the matter. In addition, the discovery of additional construction defect problems, as discussed above, will likely result in additional delays. The extent and magnitude of the construction defects continues to worsen with time. The General Partner believes that the Partnership can no longer wait for the cases to be settled and has authorized the start of repairs using the cash reserve funds currently held. It is anticipated that funds held in reserve are not adequate to repair the entire project, so completion of the most critical projects will be prioritized. The actual costs to make necessary or desired repairs of construction defects cannot be predicted, but the General Partner believes such costs will be substantial. The cost of pursuing litigation also is significant. The General Partner cannot predict or estimate what amounts, if any, will be recovered through litigation. 4. REAL ESTATE Statement of Financial Accounting Standards 121 ("SFAS 121"), Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of, requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In connection with the construction defect problems, the General Partner reviewed the projected cash flows of both Properties to ensure an adjustment of the book value was not required in accordance with SFAS 121. Further, although the full extent of the damage to the hardboard siding for the Properties is unknown, management believes that the fair market value of each Property still remains greater than its respective book value. ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Alderwood and Timberleaf, which are located in Santa Clara, California, are apartment complexes with 234 units and 124 units, respectively. The Properties commenced operations at completion of construction in December 1986. Liquidity and Capital Resources Cash generated by operations during the first six months of 2000 was used to pay current operating expenses and debt service, including payments to the hardboard siding security accounts. Quarterly distributions have been suspended in order to accumulate working capital reserves until the degree of damage cause by the construction defects and determination of liability are known. See Note 3 to Financial Statements, Construction Defects, for a more comprehensive discussion of this matter. Each Property has a non-recourse note payable, secured by a first deed of trust. These notes bear fixed interest of 6.99% for Alderwood and 7.09% for Timberleaf. The terms of the notes require that each Property maintain a hardboard siding security account. These security accounts are additional collateral for the lender. Cash held in these security accounts was $2,947,000 and $2,150,000 for Alderwood and Timberleaf, respectively, as of June 30, 2000. Until the Completion Date, as defined, an additional 10%, as defined, or monthly cash flow, whichever is less, shall be deposited into each security account. Should the hardboard siding repairs not be completed by December 2002, or every two years thereafter, and insufficient cash has been accumulated to cure the defects based upon the lender's determination of the cost, then all cash flow shall be deposited into each applicable security account, as necessary, to fully fund the cost of construction. If the projected cash flow is insufficient to satisfy this deficiency contribution, then the Partnership has 60 days to fund the shortage over the projected cash flow. No withdrawals are permitted from the account except to cure the siding defects. The lender shall have the right to hire its own consultants to review, approve and inspect the construction. All such reasonable fees and expenses incurred by the lender shall be paid by the Partnership. Should the litigation not be settled by December 2002, and the Partnership has met all its obligations under the notes, then the Completion Date, shall be extended 18 months from the earlier of the pending settlement date or the last day for filing an appeal. Should construction not be completed by the Completion Date due to an act of force majeure, the Completion Date can be further extended to complete the construction work. Results of Operations The job market and low unemployment rates are driving the strong demand for housing. According to the Employment and Development Department, the unemployment rate for Santa Clara County in the second quarter of 2000 averaged 2.0%, down from 2.3% in the first quarter. There was a net job gain of 10,600 compared to the end of the prior quarter. In the second quarter of 2000, the Properties marketed available units at rents that averaged $1,653 for one bedroom units and $2,082 for two bedroom units. Average occupied rent per unit for the quarter was $1,505 and average occupancy during the quarter was 99% for Alderwood and Timberleaf. As of June 30, 2000, Alderwood was 99% occupied and Timberleaf was 100% occupied. In the second quarter of 1999, the Properties marketed available units at rents that averaged $1,223 for one bedroom units and $1,552 for two bedroom units. Average occupied rent per unit for the quarter was $1,361 and average occupancy during the quarter was 97% for Alderwood and Timberleaf. As of June 30, 1999, Alderwood and Timberleaf were each 97% occupied. Excluding expenditures, relating to quantification of the extent of damage to the hardboard siding and associated litigation costs, operating expenses increased 2%. The following second quarter operating expenses increased between years: Management Fees due principally to construction project management; Payroll, Benefits & Taxes due to bonus potential, maintenance salaries, health insurance, other employee benefits and workers' compensation. These increases were offset by decreases in Major Repairs and Maintenance due to landscaping, bathroom and kitchen remodeling expenditures, On-Site Administration due to employee training and office supplies, Utilities due to the credit received from a reassessment of electricity and gas usage, Turnover Costs due to higher occupancy. Operating expenses, inclusive of hardboard siding related costs, increased 10%. Overall, net operating income increased 13% during the three months ended June 30, 2000 when compared to 1999. PART II: OTHER INFORMATION 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. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROMETHEUS INCOME PARTNERS, a California Limited Partnership By: PROMETHEUS DEVELOPMENT CO., INC., a California corporation, It's General Partner Date: August 10, 2000 By: /s/ Vicki R. Mullins Vice President Date: August 10, 2000 By: /s/ John J. Murphy Vice President EXHIBIT NO. DESCRIPTION - ------- ----------- 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information. EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheets and the Statements of Income filed as part of the annual report on Form 10-K and is qualified in its entirety by reference to such annual report on Form 10-K. 6-MOS DEC-31-2000 JUN-30-2000 2,201 0 61 0 0 2,262 30,502 8,531 29,554 278 0 0 0 3,240 0 29,554 3,115 3,384 0 0 1,573 0 933 878 0 878 0 0 0 878 46 0
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