FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15675
DAVIDSON GROWTH PLUS, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1462866
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. FINANCIAL STATEMENTS
a)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 956
Receivables and deposits 403
Restricted escrows 376
Other assets 287
Investment properties:
Land $ 4,650
Buildings and related personal property 19,593
24,243
Less accumulated depreciation (10,364) 13,879
$ 15,901
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 25
Tenant security deposit liabilities 123
Accrued property taxes 242
Other liabilities 289
Mortgage notes payable 11,696
Minority interest 189
Partners' Capital (Deficit)
General partners' $ (719)
Limited partners' (28,371.75 units 4,056 3,337
issued and outstanding)
$ 15,901
See Accompanying Notes to Consolidated Financial Statements
b)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,298 $ 1,264 $ 2,617 $ 2,491
Other income 89 69 176 126
Total revenues 1,387 1,333 2,793 2,617
Expenses:
Operating 507 494 932 1,048
General and administrative 70 66 138 147
Depreciation 211 195 407 390
Interest 258 263 517 526
Property taxes 118 114 237 232
Total expenses 1,164 1,132 2,231 2,343
Income before minority
interest in net income of
joint venture 223 201 562 274
Minority interest in net
income of joint venture (17) (15) (56) (27)
Net income $ 206 $ 186 $ 506 $ 247
Net income allocated
to general partners (3%) $ 6 $ 6 $ 15 $ 7
Net income allocated
to limited partners (97%) 200 180 491 240
$ 206 $ 186 $ 506 $ 247
Net income per limited
partnership unit $ 7.05 $ 6.34 $ 17.31 $ 8.46
Distributions per limited
partnership unit $ 31.47 $ -- $ 31.47 $ 11.91
See Accompanying Notes to Consolidated Financial Statements
c)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners' Partners' Total
Original capital contributions 28,371.75 $ 1 $28,376 $28,377
Partners' (deficit) capital at
December 31, 1998 28,371.75 $ (706) $ 4,458 $ 3,752
Distributions to partners (28) (893) (921)
Net income for the six months
ended June 30, 1999 -- 15 491 506
Partners' (deficit) capital at
June 30, 1999 28,371.75 $ (719) $ 4,056 $ 3,337
See Accompanying Notes to Consolidated Financial Statements
d)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 506 $ 247
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 407 390
Amortization of discounts and loan costs 52 52
Minority interest in net income of joint venture 56 27
Change in accounts:
Receivables and deposits (14) (62)
Other assets (52) 13
Accounts payable (5) (106)
Tenant security deposit liabilities (16) 18
Accrued property taxes 48 50
Other liabilities (8) (3)
Net cash provided by operating activities 974 626
Cash flows from investing activities:
Property improvements and replacements (185) (157)
Net receipts from (deposits to) restricted escrows 107 (10)
Net cash used in investing activities (78) (167)
Cash flows from financing activities:
Payments on mortgage notes payable (126) (116)
Distribution to partners (921) (348)
Distribution to minority partner (79) (70)
Net cash used in financing activities (1,126) (534)
Net decrease in cash and cash equivalents (230) (75)
Cash and cash equivalents at beginning of period 1,186 1,080
Cash and cash equivalents at end of period $ 956 $1,005
Supplemental disclosure of cash flow information:
Cash paid for interest $ 465 $ 474
See Accompanying Notes to Consolidated Financial Statements
e)
DAVIDSON GROWTH PLUS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Davidson Growth
Plus, L.P. (the "Partnership" or "Registrant") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Davidson Growth Plus GP Corporation (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1999, are not necessarily indicative
of the results that may be expected for the fiscal year ended December 31, 1999.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interest in The New Fairways, LP and its 82.5% general partnership
interest in Sterling Crest Joint Venture ("Sterling Crest") which operates
Brighton Crest. The Partnership may remove the general partner of The New
Fairways, L.P., and has a controlling interest in Sterling Crest; therefore, the
partnerships are controlled and consolidated by the Partnership. All significant
interpartnership balances have been eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. Affiliates of the Managing General Partner provide
property management and asset management services to the Partnership. The
Partnership Agreement provides for payments to affiliates for services and as
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following amounts were paid or accrued to the Managing General Partner
and/or its affiliates during the six month periods ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 141 $ 135
Reimbursement for services of affiliates (included in
operating expense, general and administrative expense,
and investment properties) 50 75
During the six months ended June 30, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $141,000 and
$135,000 for management fees for the six months ended June 30, 1999 and 1998,
respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $50,000 and
$75,000 for the six months ended June 30, 1999 and 1998, respectively. Included
in these expenses is approximately $4,000 and $18,000 for construction oversight
reimbursements for the six months ended June 30, 1999 and 1998, respectively.
The Partnership Agreement provides for the Managing General Partner to receive a
fee for managing the affairs of the Partnership. The fee is 2% of adjusted cash
from operations, as defined in the Partnership Agreement. Payment of this
management fee is subordinated and is payable only after the Partnership has
distributed, to the limited partners, adjusted cash from operations in any year
equal to 10% of the limited partners adjusted invested capital as defined in the
Partnership Agreement. Unpaid subordinated Partnership management fees at June
30, 1999, are approximately $131,000. Included in the $131,000 subordinated
management fee payable at June 30, 1999, were Partnership management fees of
approximately $25,000 and $10,000 for the six month periods ended June 30, 1999
and 1998, respectively.
On September 25, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992-MI. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including the Fairway Apartments owned by the Partnership.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 9,659.73 (approximately
34.05% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $363 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 654.50
units. As a result, AIMCO and its affiliates currently own 7,832.33 units of
limited partnership interest in the Partnership representing approximately
27.61% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO.
NOTE D - DISTRIBUTIONS TO PARTNERS
Cash distributions from operations of approximately $921,000 (approximately
$893,000 to the limited partners or $31.47 per limited partnership unit) were
paid to the partners during the six months ended June 30, 1999. Cash
distributions from operations of approximately $348,000 (approximately $338,000
to the limited partners or $11.91 per limited partnership unit) were paid to the
partners during the six months ended June 30, 1998.
NOTE E - SEGMENT INFORMATION
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
in Marietta, Georgia, Plano, Texas and Brandon, Florida. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 2,617 $ -- $ 2,617
Other income 130 46 176
Interest expense 517 -- 517
Depreciation 407 -- 407
General and administrative expense -- 138 138
Minority interest in net income of
joint venture -- (56) (56)
Segment profit (loss) 654 (148) 506
Total assets 15,599 302 15,901
Capital expenditures for investment
properties 185 -- 185
1998
Residential Other Totals
Rental income $ 2,491 $ -- $ 2,491
Other income 101 25 126
Interest expense 526 -- 526
Depreciation 390 -- 390
General and administrative expense -- 147 147
Minority interest in net income of
joint venture -- (27) (27)
Segment profit (loss) 396 (149) 247
Total assets 15,736 876 16,612
Capital expenditures for investment
properties 157 -- 157
NOTE F - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were heard during February 1999.
No ruling on such demurrers has been received. The Managing General Partner
does not anticipate that costs associated with this case, if any, will be
material to the Partnership's overall operations.
In March 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v.
Davidson Growth Plus, L.P., et al. The complaint claims that the Partnership
and the Managing General Partner breached certain contractual and fiduciary
duties allegedly owed to the claimant and seeks damages and injunctive relief.
This case was settled on April 9, 1999. The Partnership is responsible for a
portion of the settlement costs. The costs associated with the settlement are
included in total expenses for the six months ended June 30, 1999, and did not
have a material effect on the Partnership's net operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
six months ended June 30, 1999 and 1998:
Average Occupancy
1999 1998
Brighton Crest Apartments
Marietta, Georgia 94% 95%
The Fairway Apartments
Plano, Texas 93% 93%
The Village Apartments
Brandon, Florida 97% 99%
Results of Operations
The Partnership realized net income of approximately $506,000 for the six months
ended June 30, 1999, compared to net income of approximately $247,000 for the
six months ended June 30, 1998. The Partnership's net income for the three
months ended June 30, 1999, was approximately $206,000 compared to net income of
approximately $186,000 for the three months ended June 30, 1998. The increase
in net income for the six months ended June 30, 1999, is primarily attributable
to an increase in total revenues and a decrease in total expenses offset by an
increase in minority interest in income from joint venture. The increase in net
income for the three months ended June 30, 1999, is due to an increase in total
revenues which is partially offset by an increase in total expenses. Total
revenues increased for both periods as a result of increases in rental income
and other income. Rental income increased primarily due to an increase in
average annual rental rates at all the Partnership's properties and a reduction
in concession costs at Brighton Crest. These increases were partially offset by
decreases in occupancy at Brighton Crest and The Village Apartments. Other
income increased primarily due to an increase in tenant charges at all the
Partnership's properties. Tenant charges increased due to increased tenant move
outs due to an active home buying market. The decrease in total expenses for the
six month period is primarily attributable to a decrease in operating expenses.
Operating expenses decreased primarily due to decreased maintenance and repairs
expenses at The Fairway Apartments and Brighton Crest Apartments and reduced
insurance expense at all the Partnership's properties due to a change in
insurance carrier. The increase in total revenues for the three months ended
June 30, 1999, was partially offset by an increase in total expenses primarily
due to an increase in operating expense due to an increase in advertising
expense at Brighton Crest Apartments, and an increase in utility expenses at
Brighton Crest. The increase in minority interest in net income of joint venture
is due to the improved operations at the joint venture's property Brighton Crest
due primarily to increased rental rates and reduced maintenance expenses.
Included in general and administrative expenses at both June 30, 1999 and 1998,
are reimbursements to the Managing General Partner allowed under the Partnership
Agreement associated with its management of the Partnership. Costs associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement are also
included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Managing General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due
to changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
The Partnership held cash and cash equivalents of approximately $956,000 at June
30, 1999, compared to approximately $1,005,000 at June 30, 1998. The decrease
in cash and cash equivalents of approximately $230,000 from the Partnership's
cash balance at December 31, 1998, is due to approximately $78,000 of cash used
in investing activities and approximately $1,126,000 of cash used in financing
activities which was offset by approximately $974,000 of cash provided by
operating activities. Cash used in investing activities consists of property
improvements and replacements which were partially offset by net receipts from
escrow accounts maintained by the mortgage lenders. Cash used in financing
activities consisted primarily of a distribution from operations to the
partners, and to a lessor extent, of payments of principal made on the mortgages
encumbering the Partnership's properties, and a distribution to the minority
partner of Sterling Crest. The Partnership invests its working capital reserves
in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. Capital
improvements planned for the Partnership's properties are detailed below.
Brighton Crest Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $69,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement, landscaping, and structural and other
building improvements. These improvements were funded from operating cash flow.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $169,000 of capital improvements over the next few years. Capital
improvements budgeted for 1999, which include certain of the required
improvements, consist of carpet and vinyl replacement and landscaping. These
improvements are budgeted for, but not limited to, approximately $204,000.
Fairway Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $69,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement, interior decorating, electrical
upgrades, and pool repairs. These improvements were funded from the
Partnership's reserves. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $264,000 of capital improvements over the next
few years. Capital improvements planned for 1999, which include certain of the
required improvements, consist of carpet and vinyl replacement, landscaping,
parking lot repairs, pool repairs, roof replacement and structural repairs.
These improvements are budgeted for, but not limited to, approximately $328,000.
The Village Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $47,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement, air conditioning units, roof
replacement, and structural and other building improvements. These improvements
were funded from the Partnership's operating cash flow. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $368,000
of capital improvements over the next few years. Capital improvements planned
for 1999, which include certain of the required improvements, consist of
plumbing upgrades, landscaping, pool repairs and roof replacement. These
improvements are budgeted for, but not limited to, approximately $370,000.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $11,696,000, net of discount, is amortized over
periods ranging from approximately 21 to 29 years with balloon payments due in
2002 and 2003. The Managing General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
may risk losing such properties through foreclosure.
Cash distributions from operations of approximately $921,000 (approximately
$893,000 to the limited partners or $31.47 per limited partnership unit) were
paid to the partners during the six months ended June 30, 1999. Cash
distributions from operations of approximately $348,000 (approximately $338,000
to the limited partners or $11.91 per limited partnership unit) were paid to the
partners during the six months ended June 30, 1998. Future cash distributions
will depend on the levels of net cash generated from operations, refinancings,
property sales, timing of debt maturities and the availability of cash reserves.
The Partnership's distribution policy will be reviewed on a semi-annual basis.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations after required capital improvements to permit
further distributions to its partners in 1999 or subsequent periods.
Tender Offer
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 9,659.73 (approximately
34.05% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $363 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 654.50
units. As a result, AIMCO and its affiliates currently own 7,832.33 units of
limited partnership interest in the Partnership representing approximately
27.61% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were heard during February 1999.
No ruling on such demurrers has been received. The Managing General Partner
does not anticipate that costs associated with this case, if any, will be
material to the Partnership's overall operations.
In March 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v.
Davidson Growth Plus, L.P., et al. The complaint claims that the Partnership
and the Managing General Partner breached certain contractual and fiduciary
duties allegedly owed to the claimant and seeks damages and injunctive relief.
This case was settled on April 9, 1999. The Partnership is responsible for a
portion of the settlement costs. The costs associated with the settlement are
included in total expenses for the six months ended June 30, 1999, and did not
have a material effect on the Partnership's net operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAVIDSON GROWTH PLUS L.P.
BY: DAVIDSON GROWTH PLUS GP CORPORATION
Its Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date: August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Growth Plus, L.P. 1999 Second Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000795757
<NAME> DAVIDSON GROWTH PLUS, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 956
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,243
<DEPRECIATION> 10,364
<TOTAL-ASSETS> 15,901
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,696
0
0
<COMMON> 0
<OTHER-SE> 3,337
<TOTAL-LIABILITY-AND-EQUITY> 15,901
<SALES> 0
<TOTAL-REVENUES> 2,793
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 506
<EPS-BASIC> 17.31<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
