-----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, Ka5/lWO2GVjYRgZXUVK93MQa47MLddVdJ2ZbOZxNRoXx5EXAw5CrJ9fFCSdbAPlV Lg5GwF27djB0wcZjLvbh3Q== 0000892626-96-000304.txt : 19960816 0000892626-96-000304.hdr.sgml : 19960816 ACCESSION NUMBER: 0000892626-96-000304 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARVIDA JMB PARTNERS L P II CENTRAL INDEX KEY: 0000852494 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 581809884 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19245 FILM NUMBER: 96612251 BUSINESS ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3129151987 10-Q 1 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 the quarter ended June 30, 1996 Commission file number 0-19245 ARVIDA/JMB PARTNERS, L.P.-II (Exact name of registrant as specified in its charter) Delaware 58-1809884 (State of organization) (IRS Employer Identification No.) 900 N. Michigan Avenue., Chicago, IL 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312/440-4800 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 a shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements. . . . . . . . . . . . . . . . 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 14 PART II OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 17 Item 3. Defaults Upon Senior Securities . . . . . . . . . . 17 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 18 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARVIDA/JMB PARTNERS, L.P.-II (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURE CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED) ASSETS ------
JUNE 30, DECEMBER 31, 1996 1995 ------------- ----------- Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 483,393 1,387,313 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,211,527 2,552,834 Trade and other accounts receivable (net of allowance for doubtful accounts of $51,166 at June 30, 1996 and $18,431 at December 31, 1995) . . . . . . . . . . . . . . . . . . . 382,904 1,218,015 Real estate inventories . . . . . . . . . . . . . . . . . . . . . . . . . 50,354 10,766,333 Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 2,623,668 6,404,217 Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 1,185,940 1,910,446 ------------ ------------ Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,937,786 24,239,158 ============ ============ LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS) ----------------------------------------------------- Liabilities: Bank overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- 550,666 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,222 450,129 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,191 1,121,423 Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 48,196,284 39,137,504 Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . 7,788,844 7,591,889 Notes and mortgages payable (in default) . . . . . . . . . . . . . . . . 79,106,916 100,175,208 ------------ ------------ Commitments and contingencies Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 135,655,457 149,026,819 ------------ ------------ Partners' capital accounts (deficits): General Partner and Associate Limited Partner: Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000 Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . . . . (8,185,715) (5,809,930) Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . (246,771) (246,771) ------------ ------------ (8,430,486) (6,054,701) ------------ ------------ Limited partners: Capital contributions, net of offering costs . . . . . . . . . . . . . 209,753,671 209,753,671 Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . . . . (321,819,682) (319,265,457) Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . (9,221,174) (9,221,174) ------------ ------------ (121,287,185) (118,732,960) ------------ ------------ Total partners' deficits . . . . . . . . . . . . . . . . . . . . . (129,717,671) (124,787,661) ------------ ------------ Total liabilities and partners' deficits . . . . . . . . . . . . . $ 5,937,786 24,239,158 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
ARVIDA/JMB PARTNERS, L.P.-II (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURE CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------------- -------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- Revenues: Housing . . . . . . . . . . . . . . . . . . . . . $ -- 2,447,276 140,810 5,084,252 Homesites . . . . . . . . . . . . . . . . . . . . 598,019 2,323,900 1,244,069 4,759,100 Land and property . . . . . . . . . . . . . . . . 20,060,819 -- 20,060,819 -- Operating properties. . . . . . . . . . . . . . . 1,194,787 1,418,538 2,881,131 2,807,847 Brokerage and other operations. . . . . . . . . . 225,457 715,647 561,628 1,369,086 ----------- ---------- ----------- ----------- Total revenues. . . . . . . . . . . . . . 22,079,082 6,905,361 24,888,457 14,020,285 Cost of revenues: Housing . . . . . . . . . . . . . . . . . . . . . 186,094 2,102,816 333,373 4,389,716 Homesites . . . . . . . . . . . . . . . . . . . . 505,439 1,840,921 1,063,976 3,712,900 Land and property . . . . . . . . . . . . . . . . 14,050,234 -- 14,050,234 -- Operating properties. . . . . . . . . . . . . . . 1,360,309 1,348,377 2,738,531 2,705,594 Brokerage and other operations. . . . . . . . . . 241,530 744,898 534,794 1,336,599 ----------- ---------- ----------- ----------- Total cost of revenues. . . . . . . . . . 16,343,606 6,037,012 18,720,908 12,144,809 Gross operating profit. . . . . . . . . . . . . . . 5,735,476 868,349 6,167,549 1,875,476 Selling, general and administrative expenses. . . . (857,187) (1,049,011) (1,339,962) (2,587,754) ----------- ---------- ----------- ----------- Net operating income (loss) . . . . . . . 4,878,289 (180,662) 4,827,587 (712,278) Interest income . . . . . . . . . . . . . . . . . . 6,309 56,828 15,433 139,439 Interest and real estate taxes, net . . . . . . . . (4,700,270) (5,329,131) (9,773,030) (10,771,031) ----------- ---------- ----------- ----------- Net income (loss) . . . . . . . . . . . . $ 184,328 (5,452,965) (4,930,010) (11,343,870) =========== ========== =========== =========== Net income (loss) per Limited Partnership Interest. . . . . . . . . . . . . . . . $ 4.71 (12.37) (10.90) (28.81) =========== ========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
ARVIDA/JMB PARTNERS, L.P.-II (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURE CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995 ------------ ----------- Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,930,010) (11,343,870) Charges to net loss not requiring cash: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 233,799 281,429 Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . 32,735 (3,239) Loss (gain) on disposition of property and equipment. . . . . . . . . . . . . 1,765,143 (2,602) Changes in: Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,341,307 (2,870,226) Trade and other accounts receivable . . . . . . . . . . . . . . . . . . . . . 802,376 203,636 Real estate inventories: Additions to real estate inventories. . . . . . . . . . . . . . . . . . . . (4,731,604) (889,492) Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,447,583 8,102,616 Capitalized interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (279,440) Capitalized real estate taxes . . . . . . . . . . . . . . . . . . . . . . . -- (105,455) Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . 670,202 2,793,595 Accounts payable, accrued expenses and other liabilities. . . . . . . . . . . 8,885,873 5,599,516 Deposits and unearned income. . . . . . . . . . . . . . . . . . . . . . . . . (835,232) (337,452) Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 196,955 226,457 ------------ ----------- Net cash provided by operating activities . . . . . . . . . . . . . . 18,879,127 1,375,473 ------------ ----------- Investing activities: Proceeds from disposal of property and equipment. . . . . . . . . . . . . . . 1,835,911 2,602 Acquisitions of property and equipment. . . . . . . . . . . . . . . . . . . . -- (176,123) ------------ ----------- Net cash provided by (used in) investing activities . . . . . . . . . 1,835,911 (173,521) ------------ ----------- Financing activities: Payments of notes and mortgages payable . . . . . . . . . . . . . . . . . . . (21,068,292) (8,474,348) Repayments of bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . (550,666) (788,396) ------------ ----------- Net cash used in financing activities . . . . . . . . . . . . . . . . (21,618,958) (9,262,744) ------------ ----------- Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (903,920) (8,060,792) Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387,313 9,526,271 ------------ ----------- Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 483,393 1,465,479 ============ =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized. . . . . . . . . . . . . . . . . . . . $ -- -- ============ =========== Non-cash investing and financing activities . . . . . . . . . . . . . . . . . $ -- -- ============ =========== The accompanying notes are an integral part of these consolidated financial statements.
ARVIDA/JMB PARTNERS, L.P.-II (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995 (UNAUDITED) Readers of this quarterly report should refer to the Partnership's audited financial statements for the fiscal year ended December 31, 1995, which are included in the Partnership's 1995 Annual Report, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. Capitalized terms used but not defined in this quarterly report have the same meanings as in the Partnership's 1995 Annual Report. GENERAL Capitalized Interest and Real Estate Taxes Interest, including the amortization of loan fees, of $5,657,189 and $6,971,239 was incurred for the six months ended June 30, 1996 and 1995, respectively, of which $0 and $279,440 was capitalized, respectively. There were no interest payments made during the three and six month periods ended June 30, 1996 and 1995. Interest, including the amortization of loan fees, of $2,742,832 and $3,447,455 was incurred for the three months ended June 30, 1996 and 1995, respectively, of which $0 and $154,762 was capitalized, respectively. The Partnership has not made the required monthly interest payments on its credit facility since September 1994. Real estate taxes of $4,115,841 and $4,184,687 were incurred for the six months ended June 30, 1996 and 1995, respectively, of which $0 and $105,455 was capitalized, respectively. Real estate tax payments of $517,359 and $370,238 were made for the six months ended June 30, 1996 and 1995, respectively. Real estate taxes of $1,957,438 and $2,086,146 were incurred for the three months ended June 30, 1996 and 1995, respectively, of which $0 and $49,708 was capitalized, respectively. Real estate tax payments of $67,616 and $9,596 were made during the three months ended June 30, 1996 and 1995, respectively. The preceding analysis of real estate taxes does not include real estate taxes incurred or paid with respect to the Partnership's club facilities and other operating properties as these taxes are included in cost of revenues for operating properties. Property and Equipment and Other Assets Depreciation expense of $179,495 and $216,876 was incurred for the six month periods ended June 30, 1996 and 1995, respectively. Amortization of other assets of $54,304 and $64,553 was incurred for the six months ended June 30, 1996 and 1995, respectively. Depreciation expense of $79,957 and $107,526 was incurred for the three months ended June 30, 1996 and 1995, respectively. Amortization of other assets of $23,447 and $32,277 was incurred for the three months ended June 30, 1996 and 1995, respectively. CASH, CASH EQUIVALENTS AND RESTRICTED CASH There are no treasury bills or other short-term investments with original maturity dates of three months or less included in cash and cash equivalents at June 30, 1996 and December 31, 1995. Included in restricted cash are amounts restricted under various escrow agreements and approximately $1,190,400 remaining from the original $3 million which was deposited into a restricted collateral account in March 1995 pursuant to an agreement between the Partnership and its lender. NOTES AND MORTGAGES PAYABLE (IN DEFAULT) The Partnership's credit facilities consist of a $52.5 million term loan, a $67.5 million term loan, a revolving line of credit of approximately $14.3 million and approximately $4.3 million of outstanding letters of credit securing performance obligations of the Partnership. There is also a $5 million letter of credit facility which secures performance obligations of the Partnership. At June 30, 1996, approximately $11.2 million, $56.4 million and $11.5 million was outstanding under the $52.5 million term loan, the $67.5 million term loan and the revolving line of credit facility, respectively. For the six month period ended June 30, 1996, the effective interest rate for the combined term loans and the revolving line of credit facility was approximately 12.6% per annum. The Partnership has not made the required interest payments on its credit facilities since September 1994. The amount of interest which remains payable at June 30, 1996 totals approximately $32.1 million. The accrued interest on the Partnership's credit facilities is the primary cause for the increase in Accrued expenses and other liabilities at June 30, 1996 as compared to December 31, 1995. Proceeds from the sales of housing units, homesites, land parcels and other collateral securing the credit facilities, net of brokerage commissions and certain other customary selling expenses are to be delivered to the lender to be applied against the outstanding principal balances on both of the term loans. Through June 30, 1996, the Partnership has remitted proceeds totalling approximately $39.9 million from sales made after becoming subject to this requirement in September 1994. On October 31, 1995, the Partnership and its lender reached an agreement to amend the March 1995 Forbearance Agreements agreeing to, among other things, a new plan whereby the Partnership would attempt to sell its remaining assets (other than the Talega Property) in accordance with set minimum sales prices for each of the assets over the course of a six-month period with payment of certain operational, development and marketing costs to be made out of available funds in a restricted collateral account. The agreement was subject to the lender's continued forbearance from the exercise of its remedies under the credit facilities and its right to cease funding costs not yet then incurred. The Partnership and its lender are currently in the process of negotiating a revised plan whereby the Partnership would sell its remaining assets by December 31, 1996. As of the date of this report, the lender has not initiated any actions as a result of the Partnership's failure to sell all of its remaining assets as specified per the terms of the originally agreed upon plan. During June 1996, the Heathrow joint venture, in which the Partnership is the managing general partner, closed on the sale of the remaining land, the country club and certain related assets within the Partnership's Heathrow Community. This transaction is reflected in Land and property operations on the accompanying Consolidated Statements of Operations. This sale is the primary cause for various significant changes on the accompanying Consolidated Balance Sheets at June 30, 1996 as compared to December 31, 1995 and on the accompanying Consolidated Statement of Operations for the three and six months ended June 30, 1996 as compared to the same periods in 1995. The net proceeds from this sale, after prorations and closing costs, of approximately $18.4 million were paid to the Partnership's lender and applied against the outstanding principal balance on both of the Partnership's term loans. The sale resulted in a gain for financial reporting purposes and a loss for Federal income tax purposes. During March 1996, the Partnership reached an agreement with an unaffiliated third party for the sale of the Talega Property. This contract subsequently expired by its terms without the sale of the Property being consummated. The Partnership continues to actively market the Property and is in various stages of negotiations with potential purchasers. During April 1996, the Partnership entered into a non-binding letter of intent with an unaffiliated third party for the sale of the retail shopping plaza at its Heathrow Community. This letter of intent expired by its terms without the sale of the shopping plaza being consummated. The Partnership continues to actively market this Property for sale. Although there can be no assurance, the Partnership currently expects that it will be disposing of all of its remaining assets by December 31, 1996 in accordance with the plan which is currently being negotiated with its lender. The Partnership's ability to dispose of all of its assets during 1996 is dependent upon, among other things, the Partnership entering into a contract for the sale of its Talega Property on terms acceptable to its lender, and closing such sale by the end of the year. It is expected that any proceeds from the sale or other disposition of such assets, in excess of the costs of sale and general and administrative expenses attributable thereto, will be paid to the lender or other creditors of the Partnership. Upon completion of the sale of the Partnership's remaining assets, the Partnership expects to terminate. The Limited Partners should not expect to receive any future distributions from the Partnership. The possibility still remains that the lender may pursue its remedies under the credit facilities, including realizing upon substantially all of the Partnership's remaining assets, which are collateral security for the credit facilities. These issues raise substantial doubt about the Partnership's ability to continue as a going concern. If the Partnership is unable to continue as a going concern, it may be forced to dispose of its Properties in a manner that would realize less than would be realized under its current plan for an orderly disposition. If this were to occur, any proceeds received could be less than the current carrying values of the Properties, resulting in the recognition of additional losses by the Partnership. The accompanying Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. TRANSACTIONS WITH AFFILIATES The General Partner of the Partnership or its affiliates may be reimbursed for their direct expenses or out-of-pocket expenses relating to the administration of the Partnership and its assets. For the six months ended June 30, 1996, the General Partner of the Partnership or its affiliates were due reimbursements for such direct or out-of-pocket expenditures in the amount of approximately $3,400, all of which was paid as of June 30, 1996. The total of such reimbursements for the six months ended June 30, 1995 was approximately $34,800. In addition, the General Partner and its affiliates are entitled to reimbursements for salaries and salary-related costs relating to the administration of the Partnership and the operation of the Partnership's Properties. Such costs were approximately $17,300 for the six months ended June 30, 1996, all of which was paid as of June 30, 1996. The Partnership also receives reimbursements from, or reimburses, affiliates of the General Partner for certain general and administrative costs including, and without limitation, salary and salary-related costs relating to work performed by employees of the Partnership and certain out- of-pocket expenditures incurred on behalf of such affiliates. The Partnership was entitled to receive approximately $11,700 and $3,700 for such costs for the six months ended June 30, 1996 and 1995, respectively. In addition, the Partnership was obligated to reimburse one of its affiliates approximately $0 and $23,500 for the six months ended June 30, 1996 and 1995, respectively, for costs incurred by the affiliate on behalf of the Partnership, none of which was outstanding at June 30, 1996. The Partnership and Arvida/JMB Partners, L.P. (a publicly-held limited partnership affiliated with the General Partner, "Arvida/JMB-I") each employ project related and administrative personnel who perform services on behalf of both partnerships. In addition, certain out-of-pocket expenditures related to such services and other general and administrative expenditures are incurred and charged to each partnership as appropriate. The Partnership reimburses or receives reimbursements from Arvida/JMB-I for such costs (including salary and salary-related costs). For the six month period ended June 30, 1996, the Partnership was obligated to reimburse Arvida/JMB-I approximately $1,178,900. At June 30, 1996, approximately $205,500 was unpaid, all of which was paid as of August 2, 1996. In addi- tion, for the six month period ended June 30, 1996, the Partnership was entitled to receive approximately $113,700 from Arvida/JMB-I. At June 30, 1996, approximately $16,300 was outstanding, all of which was received as of August 2, 1996. For the six months ended June 30, 1995, the Partnership was obligated to reimburse Arvida/JMB-I approximately $1,403,000 and the Partnership was entitled to receive reimbursements from Arvida/JMB-I of approximately $97,300. Arvida Company ("Arvida"), pursuant to an agreement with the Partnership, provides development, construction, management and other personnel and services to the Partnership for all of its projects and operations. Pursuant to such agreement, the Partnership reimburses Arvida for all of its salary and salary-related costs incurred in connection with work performed on behalf of the Partnership. The total of such costs for the six month periods ended June 30, 1996 and 1995 were approximately $157,000 and $506,600 respectively, all of which were paid as of August 2, 1996. Pursuant to a requirement under the Partnership's credit facilities, a portion of the reimbursements paid to Arvida and Arvida/JMB-I as well as portions of the Partnership's insurance and loan refinancing costs incurred in 1992 and 1993, have been funded on the Partnership's behalf by advances from the General Partner. Such advances, which do not bear interest, totalled approximately $4,609,400 at June 30, 1996. The repayment of such advances is subordinated to the receipt by the Holders of Interests of certain levels of return, and therefore is not expected to be made. In addition, the Partnership was entitled to receive approximately $12,900 from an affiliate of the General Partner for salary and salary-related costs incurred by the Partnership on behalf of such affiliate of the General Partner, all of which was outstanding as of June 30, 1996 and August 2, 1996. The Partnership incurs certain general and administrative expenses, including insurance premiums, which are paid by the Partnership on behalf of its affiliated homeowners associations. The Partnership receives reimbursements from the affiliates for such costs. For the six month period ended June 30, 1996, the Partnership was entitled to receive approximately $3,900 from such affiliates. At June 30, 1996, approximately $2,300 was owed to the Partnership, none of which was received as of August 2, 1996. For the six months ended June 30, 1995, the Partnership was entitled to receive approximately $13,700 from such affiliates. Arvida provides development management services to the Heathrow partnership. For the six months ended June 30, 1996, management fees of approximately $212,200 had been incurred, the payment of which has been deferred. The cumulative amount of such deferred management fees as of June 30, 1996 was approximately $3,005,200. Such deferred fees do not bear interest and remain payable. The ultimate payment of these management fees is not expected to be made as it is subordinated to certain levels of return to the Holders of Interests. In accordance with the Partnership Agreement, the General Partner and Associate Limited Partner have deferred a portion of their distributions of net cash flow from the Partnership totalling approximately $247,000. This amount, which does not bear interest, is not expected to be paid. COMMITMENTS AND CONTINGENCIES As security for performance of certain development obligations, including the Partnership's obligations with respect to the Santa Margarita Water District, the Partnership is contingently liable under standby letters of credit and bonds at June 30, 1996 for approximately $2,600,400 and $528,000, respectively. The Partnership has been named a defendant in a lawsuit filed in the Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County, Florida entitled Land Investment I, Ltd., Heathrow Land & Development Corporation, Heathrow Shopping Center Associates, and Paulucci Investments v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida Company and JMB Realty Corporation. The complaint, as amended, includes counts for breach of the management agreement, breach of fiduciary duty, fraud in the inducement and conspiracy to commit fraud in the inducement, breach of the partnership agreement and rescission in connection with the purchase and management of the Heathrow development. Plaintiffs seek, among other things, unspecified compensatory damages, the right to add a claim for punitive damages, rescission, attorneys fees, costs, and such other relief as the Court deems appropriate. The Partnership believes that the lawsuit is without merit and intends to vigorously defend itself in this matter. The Partnership has been advised by Merrill Lynch that various investors of the Partnership have sought to compel Merrill Lynch to arbitrate claims brought by certain investors of the Partnership, and has been named as a respondent in various arbitrations, representing approximately 11% of the total Interests outstanding. These claimants have sought and are seeking to arbitrate claims involving unspecified damages based on Merrill Lynch's alleged violations of applicable state and/or federal securities laws and alleged violations of the rules of the National Association of Securities Dealers, Inc., together with pendent state law claims. The Partnership believes that Merrill Lynch has resolved some of these claims through litigation and otherwise, and that Merrill Lynch is defending other claims. Merrill Lynch has asked the Partnership and its General Partner to confirm an obligation of the Partnership and its General Partner to indemnify Merrill Lynch in these claims against all loss, liability, claim, damage and expense, including without limitation attorney's fees and expenses, under the terms of a certain Agency Agreement dated October 23, 1989 ("Agency Agreement") with the Partnership relating to the sale of Interests through Merrill Lynch on behalf of the Partnership. The Agency Agreement generally provides that the Partnership and its General Partner shall indemnify Merrill Lynch against losses occasioned by an actual or alleged misstatement or omission of material facts in the Partnership's offering material used in connection with the sale of Interests and suffered by Merrill Lynch in performing its duties under the Agency Agreement, under certain specified conditions. The Agency Agreement also generally provides, under certain conditions, that Merrill Lynch shall indemnify the Partnership and its General Partner for losses suffered by the Partnership and occasioned by certain specified conduct by Merrill Lynch in the course of Merrill Lynch's solicitation of subscriptions for, and sale of, Interests. The Partnership is unable to determine at this time the ultimate investment of investors who have filed arbitration claims as to which Merrill Lynch might seek indemnification in the future. At this time, and based upon the information presently available about the arbitration statements of claims filed by some of these investors, the Partnership and its General Partner believe that they have meritorious defenses to demands for indemnification made by Merrill Lynch and intend to vigorously pursue such defenses. Although there can be no assurance regarding the outcome of the claims for indemnification, at this time, based on information presently available about such arbitration statements of claims, the Partnership and its General Partner do not believe that the demands for indemnification by Merrill Lynch will have a material adverse effect on the financial condition of the Partnership. In addition, the Partnership could potentially be liable for certain amounts incidental to other matters, the amount of which could be substantial. TAX-EXEMPT BOND FINANCING In connection with the development of Talega, the Partnership has utilized bond financing to construct certain on-site and off-site water and sewer infrastructure improvements which the Partnership would otherwise be obligated to finance and construct as a condition to obtain certain approvals for the project. As of June 30, 1996, $59,645,000 of the bonds were outstanding. Approximately $46.5 million of proceeds from the sale of bonds was expended by the District on infrastructure improvements through June 30, 1996. ADJUSTMENTS In the opinion of the General Partner, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been made to the accompanying consolidated financial statements as of June 30, 1996 and December 31, 1995 and for the three and six month periods ended June 30, 1996 and 1995 (assuming the Partnership continues as a going concern). PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the notes to the accompanying consolidated financial statements ("Notes") contained in this report for additional information concerning certain of the Partnership's investments. As discussed below, there is substantial doubt about the Partnership's ability to continue as a going concern. At June 30, 1996 and December 31, 1995, the Partnership had cash and cash equivalents of approximately $483,400 and $1,387,300, respectively. Bank overdrafts representing checks in transit of approximately $551,000 at December 31, 1995, were repaid from cash on hand in January 1996. Remaining cash and cash equivalents were available for working capital requirements. The Partnership had suspended cash distributions to its Partners in late 1990 due to, among other things, deteriorating market conditions. The Partnership has been unable to reinstate distributions due to its financial condition and the operations of its Properties, which are also discussed more fully below. In addition, the Partnership is currently in default of the terms of its credit facilities and a default has been asserted concerning Tax-Exempt Bond Financing. The source of the Partnership's liquidity is dependent upon its lender continuing to forbear from exercising its remedies under the Partnership's credit facility agreements and permitting the Partnership to use funds in a restricted cash collateral account and certain sales proceeds to finance the Partnership's limited operations, as more fully discussed in Part II - Item 3. (Defaults on Senior Securities). During June 1996, the Heathrow joint venture, in which the Partnership is the managing general partner closed on the sale of the remaining land, the country club and certain related assets within the Partnership's Heathrow Community. This transaction is reflected in Land and property operations on the accompanying Consolidated Statements of Operations. This sale is the primary cause for various significant changes on the accompanying Consolidated Balance Sheets at June 30, 1996 as compared to December 31, 1995 and on the accompanying Consolidated Statements of Operations for the three and six month periods ended June 30, 1996 as compared to the same periods in 1995. The net proceeds from this sale, after prorations and closing costs, of approximately $18.4 million were paid to the Partnership's lender and applied against the outstanding principal balances on both of the Partnership's term loans. The sale resulted in a gain for financial reporting purposes and a loss for Federal income tax purposes in 1996. During March 1996, the Partnership reached an agreement with an unaffiliated third party for the sale of the Talega Property. The contract subsequently expired by its terms without the sale of the Property being consummated. The Partnership continues to actively market the Property for sale and is in various stages of negotiations with potential purchasers. During April 1996, the Partnership entered into a non-binding letter of intent with an unaffiliated third party for the sale of the retail shopping plaza at its Heathrow Community. This letter of intent subsequently terminated by its terms without the sale of the shopping plaza being consummated. The Partnership continues to actively market this Property for sale. Although there can be no assurance, the Partnership currently expects that it will be disposing of all of its remaining assets by December 31, 1996 in accordance with the plan which is currently being negotiated with its lender. The Partnership's ability to dispose of all of its assets during 1996 is dependent upon, among other things, the Partnership entering into a contract for the sale of its Talega Property on terms acceptable to its lender, and closing such sale by the end of the year. It is expected that any proceeds from the sale or other disposition of such assets, in excess of the costs of sale and general and administrative expenses attributable thereto, will be paid to the lender or other creditors of the Partnership. Upon completion of the sale of the Partnership's remaining assets, the Partnership expects to terminate. The Limited Partners should not expect to receive any future distributions from the Partnership. The possibility still remains that the lender may pursue its remedies under the credit facilities, including realizing upon substantially all of the Partnership's remaining assets, which are collateral security for the credit facilities. These issues raise substantial doubt about the Partnership's ability to continue as a going concern. If the Partnership is unable to continue as a going concern, it may be forced to dispose of its Properties in a manner that would realize less than would be realized under its current plan for an orderly disposition. If this were to occur, any proceeds received could be less than the current carrying values of the Properties, resulting in the recognition of additional losses by the Partnership. The accompanying Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. RESULTS OF OPERATIONS Due to the Partnership's financial condition and the sale of the remaining land, the country club and certain related assets within the Partnership's Heathrow Community during June 1996, the results of operations for the three and six months ended June 30, 1996 reflect the limited activity of its remaining assets. Housing revenues for the three and six months ended June 30, 1996 have been negatively impacted by the prohibition placed on the Partnership by its lender regarding the construction of new homes within Heathrow. All construction of the homes for which the lender agreed to advance funds has been completed. During the six months ended June 30, 1996, the Partnership closed on one housing unit in its Heathrow Community. Due to the sale of the Partnership's Heathrow Community, as discussed above, no units remain in inventory as of June 30, 1996. The decrease in homesite revenues for the three and six months ended June 30, 1996 as compared to the same periods in 1995 is due to a decrease in the availability of lots for sale at the Partnership's Heathrow and Atlanta Communities. The Partnership generated homesite revenues for the six months ended June 30, 1996 from 20 lot closings within the Partnership's Heathrow and Atlanta Communities. Three lots remain unsold at the Partnership's Eagle Watch Community, which is expected to close-out in 1996. The decline in the gross operating profit margin for the three and six months ended June 30, 1996 as compared to the same periods, in 1995 is due primarily to the reduction in the number of closings of higher margin product at the Partnership's Heathrow Community. Land and property revenues for the three and six months ended June 30, 1996 were generated from the sale of the remaining land, the country club and certain related assets within the Partnership's Heathrow Community, as discussed above. Revenues from operating properties decreased for the three months ended June 30, 1996 as compared to the same periods in 1995 due primarily to the June 1996 sale of the country club within the Partnership's Heathrow Community, as discussed above. Brokerage revenues decreased for the three and six months ended June 30, 1996 as compared to the same periods in 1995 due primarily to the reduction in the number of closings of homes built by unaffiliated third- party builders within the Partnership's Heathrow and Atlanta Communities. Selling, general and administrative expenses continued to decrease during the three and six months ended June 30, 1996 as compared to the same periods in 1995 due primarily to a reduction in marketing and administrative costs incurred, which is a direct result of the restrictions placed on development and construction by the Partnership's lender, and the Partnership's current financial condition. Interest and real estate taxes decreased for the three and six months ended June 30, 1996 as compared to the same periods in 1995 due primarily to a decrease in the average amount of borrowings outstanding during the period. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Partnership has been named a defendant in a lawsuit filed in the Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County, Florida entitled Land Investment I, Ltd., Heathrow Land & Development Corporation, Heathrow Shopping Center Associates, and Paulucci Investments v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida Company and JMB Realty Corporation. The complaint, as amended, includes counts for breach of the management agreement, breach of fiduciary duty, fraud in the inducement and conspiracy to commit fraud in the inducement, breach of the partnership agreement and rescission in connection with the purchase and management of the Heathrow development. Plaintiffs seek, among other things, unspecified compensatory damages, the right to add a claim for punitive damages, rescission, attorneys fees, costs, and such other relief as the Court deems appropriate. The Partnership believes that the lawsuit is without merit and intends to vigorously defend itself in this matter. The Partnership is not subject to any other material pending legal proceedings, other than ordinary litigation incidental to the business of the Partnership. However, reference is made to Notes for a discussion of certain claims asserted by Merrill Lynch for indemnification by the Partnership and the General Partner in connection with claims for arbitration filed by certain investors in the Partnership. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Partnership's $67.5 million term loan has a certain loan-to-value covenant relative to the Partnership's Talega Property. Based upon an independent appraisal of Talega which was prepared on behalf of the Partnership's lender, the Partnership has not been in compliance with this covenant. On March 4, 1994, pursuant to the terms of this loan-to-value covenant, the Partnership received a notice of default from its lender. The Partnership was required to make a term loan payment, including accrued interest, of approximately $59 million in order to cure this default. The Partnership did not have the funds to make such payment. In addition, the Partnership's credit facilities matured on December 30, 1994. However, the Partnership did not have the funds to pay off the balances outstanding under the credit facilities. The Partnership has not made the required interest payments on its credit facilities since September 1994. The aggregate amount outstanding, including principal and all accrued and unpaid interest, on the Partnership's term loans and revolving line of credit at June 30, 1996 is approximately $111.2 million. In addition, as of June 30, 1996, the Partnership is liable under standby letters of credit for approximately $2,600,400. To date, the Partnership's lender has not pursued all of its remedies under the credit facility agreements relative to these defaults, which could include, among other things, the lender realizing upon its security interest in the Partnership's Properties. In March 1995, the Partnership and its lender entered into Forbearance Agreements pursuant to which, among other things, $3 million was deposited in a restricted collateral account to pay direct operational costs and general and administrative expenses of the Partnership's limited operations, subject to the approval of the lender of such costs and expenses and its continued forbearance from the exercise of its other remedies under the credit facility agreements. The Forbearance Agreement was modified on October 31, 1995 and the Partnership is currently operating under a plan currently being negotiated to dispose of its remaining assets by December 31, 1996. It is expected that any proceeds from the sale or other disposition of such assets, in excess of the costs and general and administrative expenses attributable thereto, will be paid to the lender or other creditors of the Partnership. Reference is made to Part I. Financial Information, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for a further discussion of the Partnership's liquidity and capital resources. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3. Amended and Restated Agreement of Limited Partnership incorporated herein by reference.* 4.1. Assignment Agreement by and among the Partnership, the General Partner, the Initial Limited Partner and the Holders of Interests incorporated herein by reference.* 4.2. $225 million Credit Agreement dated April 15, 1990 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of America National Trust and Savings Association is incorporated herein by reference.** 4.3. Amended and Restated Credit Agreement dated June 23, 1992 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of America National Trust and Savings Association is incorporated herein by reference.** 4.4. Various mortgages and other security interests dated April 30, 1992 related to Arvida/JMB Partners, L.P.-II's Heathrow, Talega, Wesmere, Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and SouthRidge Lakes properties which secure loans under the Amended and Restated Credit Agreement referred to in Exhibit 4.3 are incorporated herein by reference.** 4.5. Revolving Loan and Letter of Credit Facility Credit Agreement dated June 23, 1992 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of America National Trust and Savings Association is incorporated herein by reference.** 4.6. Various mortgages and other security interests dated June 23, 1992 related to Arvida/JMB Partners, L.P.-II's Heathrow, Talega, Wesmere, Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and SouthRidge Lakes properties which secure loans under the Revolving Loan and Letter of Credit Facility Credit Agreement referred to in Exhibit 4.5 are incorporated herein by reference.** 4.7. Interim Bank Letter Agreement dated March 25, 1992 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A., Bank of America National Trust and Savings Association, and Unibank is incorporated herein by reference.** 4.8. Promissory Note effective July 1, 1992 between Arvida/JMB Partners, L.P.-II and Arvida/JMB Managers-II, Inc. is herein incorporated by reference. **** 4.9. Letter dated September 20, 1994 from the Partnership to Bank of America regarding the Partnership's acknowledgement that all proceeds from the sale of Collateral shall be delivered immediately to Co-Lenders is herein incorporated by reference to Exhibit 4.9 to the Partnership's Report on Form 10-Q (File No. 0-19245) filed on November 11, 1994. 4.10. Forbearance and Modification Agreement (Credit Agreement) dated March 21, 1995 by and among Arvida/JMB Partners, L.P.-II, Heathrow Development Associates, Ltd., Eagle Watch Partners, Bank of America Illinois and Bank of America National Trust and Savings Association is incorporated herein by reference. ***** 4.11. Forbearance and Modification Agreement (Amended and Restated Credit Agreement) dated March 21, 1995 by and among Arvida/JMB Partners, L.P.-II, Heathrow Development Associates, Ltd., Eagle Watch Partners, Bank of America Illinois and Bank of America National Trust and Savings Association is incorporated herein by reference. ***** 4.12. Letter Agreement dated October 31, 1995 supplementing Forbearance Agreements with Lenders is herein incorporated by reference.****** 10.1. Management, Advisory and Supervisory Agreement between the Partnership and Arvida Company is herein incorporated by reference.** 10.2. Revolving Credit Agreement dated September 27, 1989 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. is incorporated herein by reference.*** 10.3. First Amendment Credit Agreement dated December 21, 1989 to the Credit Agreement dated May 5, 1989 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. is incorporated herein by reference.*** 10.4. Second Amendment Credit Agreement dated January 31, 1990 to the Credit Agreement dated May 5, 1989 between Arvida/JMB Partners, L.P.-II and Continental N.A. is incorporated herein by reference.*** 10.5. Credit Agreement dated May 5, 1989 between Arvida Talega Limited Partnership and Continental Bank N.A. is incorporated herein by reference.*** 10.6. First Amendment Credit Agreement dated December 21, 1989 to the Revolving Credit Agreement dated September 27, 1989 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. is incorporated herein by reference.*** 10.7. First Amended and Restated Limited Partnership Agreement of Heathrow Development Associates, Ltd. and Assignment of Partnership Interests dated January 17, 1990 are herein incorporated by reference.** 10.8. Amended and Restated Heathrow Management Agreement dated January 17, 1990 is herein incorporated by reference.** 10.9. Eagle Watch Partners General Partnership Agreement dated December 27, 1989 is herein incorporated by reference.** 10.10. Letter of Credit Agreement dated July 27, 1990 between Arvida/JMB Partners, L.P.-II and Santa Margarita Water District regarding collateral for Tax-Exempt Bond Financing is herein incorporated by reference.** 10.11. Agreement for the Payment of the Diemer Intertie Sublease Payments, Principal and Interest of Bonds of Improvement District No. 7 and Annual Budget Deficits Between Arvida/JMB Partners, L.P.-II and Santa Margarita Water District dated January 15, 1990 is herein incorporated by reference.* 10.12. Sale and Purchase Agreement dated August 3, 1993 by and between EW Golf Club, L.P., Eagle Watch Partners and Cloverleaf Investments, Inc. for the sale of the club facilities and other assets of the Eagle Watch Golf Club is herein incorporated by reference.**** 10.13. Stipulation and Settlement dated October 19, 1993 and Final Judgement and Order dated March 31, 1994 pertaining to the class action lawsuit is incorporated herein by reference.**** 10.14. Agreement for Purchase and Sale dated August 14, 1995 by and between Arvida/JMB Partners, L.P.-II and Heritage Development South, Inc. for the sale of certain real property within the Wesmere Community is incorporated herein by reference.****** 10.15. Agreement for Sale and Purchase of Real Property dated March 22, 1996 among Heathrow Development Associates, Ltd., Heathrow Cable Limited Partnership and Associates and Country Club, L.P. and 4/46A Corporation for the sale of the remaining land and certain related assets within the Heathrow Community is incorporated herein by reference to Exhibit 10.15 to the Partnership's report for March 31, 1996 on Form 10-Q (File No. 0-19245) filed with the Securities and Exchange Commission dated May 10, 1996. * Previously filed with the Securities and Exchange Commission as Exhibit 3., 4.1 and 10.11 to the Partnership's Form 10-K (File No. 0-19245) filed on April 12, 1993 and incorporated herein by reference. ** Previously filed with the Securities and Exchange Commission as Exhibits 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 10.1, 10.7, 10.8, 10.9 and 10.10, respectively, to the Partnership's Form 10-K Report (File No. 0-19245) filed on April 13, 1992 and are herein incorporated by reference. *** Previously filed with the Securities and Exchange Commission as Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6 to the Partnership's Form 10-K Report (File No. 0-19245) under the Securities Act of 1934 filed on March 28, 1990 and incorporated herein by reference. **** Previously filed with the Securities and Exchange Commission as Exhibits 4.8, 10.12 and 10.13, respectively, to the Partnership's Form 10-K (File No. 0-19245) filed on April 13, 1994 and incorporated herein by reference. ***** Previously filed with the Securities and Exchange Commission as Exhibits 4.9 and 4.10, respectively, to the Partnership's Form 10-Q (File No. 0-19245) filed on November 9, 1995 and incorporated herein by reference. ****** Previously filed with the Securities and Exchange Commission as Exhibits 4.12, 10.14 and 10.15, respectively, to the Partnership's Form 10- K Report (File No. 0-19245) under the Securities Act of 1934 filed on March 25, 1996 and incorporated herein by reference. (b) The following report on Form 8-K was filed since the beginning of the period covered by this report. The Partnership's report dated July 1, 1996 describing the sale of the remaining land and certain related assets within the Heathrow Community. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. ARVIDA/JMB PARTNERS, L.P.-II BY: Arvida/JMB Managers-II, Inc. (The General Partner) By: GAILEN J. HULL Gailen J. Hull, Vice President Date: August 9, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person in the capacity and on the date indicated. GAILEN J. HULL Gailen J. Hull, Principal Accounting Officer Date: August 9, 1996 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 6-MOS DEC-31-1996 JUN-30-1996 1,694,920 0 434,070 51,166 50,354 0 2,623,668 0 5,937,786 0 0 0 0 0 (129,717,671) 5,937,786 24,888,457 24,888,457 18,720,908 18,720,908 11,097,559 0 0 (4,930,010) 0 (4,930,010) 0 0 0 (4,930,010) (10.90) (10.90)
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