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
March 31, 1999 Commission file #0-16976
ARVIDA/JMB PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3507015
(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 [ ]
<PAGE>
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 . . . . . . . . . . . . . . . . . . . . . 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 26
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
ASSETS
------
MARCH 31, DECEMBER 31,
1999 1998
------------ -----------
Cash and cash equivalents. . . . . . . . $ 28,585,507 82,103,559
Restricted cash. . . . . . . . . . . . . 15,256,852 13,337,171
Trade and other accounts receivable
(net of allowance for doubtful
accounts of $166,162 at March 31,
1999 and $198,548 at December 31,
1998). . . . . . . . . . . . . . . . . 39,976,128 13,989,093
Real estate inventories. . . . . . . . . 147,009,826 160,922,604
Property and equipment, net. . . . . . . 30,294,232 33,816,203
Property and equipment held for
disposition or sale. . . . . . . . . . 3,657,293 --
Investments in and advances to
joint ventures, net. . . . . . . . . . 946,935 1,217,327
Equity memberships . . . . . . . . . . . 2,039,084 2,175,510
Amounts due from affiliates, net . . . . 1,595,507 1,438,690
Prepaid expenses and other assets. . . . 6,422,210 7,367,323
------------ ------------
Total assets . . . . . . . . . $275,783,574 316,367,480
============ ============
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS
------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
------------ -----------
Liabilities:
Accounts payable . . . . . . . . . . . $ 18,322,568 16,447,904
Deposits . . . . . . . . . . . . . . . 30,858,345 27,655,567
Accrued expenses and other
liabilities. . . . . . . . . . . . . 15,864,309 16,151,679
Notes and mortgages payable, net . . . 46,954,254 46,341,804
------------ ------------
Commitments and contingencies
Total liabilities. . . . . . . 111,999,476 106,596,954
------------ ------------
Partners' capital accounts:
General Partner and Associate
Limited Partners:
Capital contributions. . . . . . . . 20,000 20,000
Cumulative net income. . . . . . . . 45,986,638 45,828,157
Cumulative cash distributions. . . . (44,570,382) (41,315,975)
------------ ------------
1,436,256 4,532,182
------------ ------------
Limited Partners:
Capital contributions, net of
offering costs . . . . . . . . . . 364,841,815 364,841,815
Cumulative net income. . . . . . . . 154,103,597 138,414,099
Cumulative cash distributions. . . . (356,597,570) (298,017,570)
------------ ------------
162,347,842 205,238,344
------------ ------------
Total partners' capital
accounts . . . . . . . . . . 163,784,098 209,770,526
------------ ------------
Total liabilities and
partners' capital. . . . . . $275,783,574 316,367,480
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
----------- ----------
Revenues:
Housing. . . . . . . . . . . . . . . . . . . $83,020,737 54,458,407
Homesites. . . . . . . . . . . . . . . . . . 684,496 1,997,337
Land and property. . . . . . . . . . . . . . 2,772,906 2,186,100
Operating properties . . . . . . . . . . . . 4,620,790 5,301,122
Brokerage and other operations . . . . . . . 6,303,640 5,544,433
----------- -----------
Total revenues . . . . . . . . . . . . 97,402,569 69,487,399
----------- -----------
Cost of revenues:
Housing. . . . . . . . . . . . . . . . . . . 66,183,155 42,550,998
Homesites. . . . . . . . . . . . . . . . . . 475,325 1,287,031
Land and property. . . . . . . . . . . . . . 2,243,260 1,729,319
Operating properties . . . . . . . . . . . . 4,216,447 4,577,996
Brokerage and other operations . . . . . . . 5,884,658 5,001,468
----------- -----------
Total cost of revenues . . . . . . . . 79,002,845 55,146,812
----------- -----------
Gross operating profit . . . . . . . . . . . . 18,399,724 14,340,587
Selling, general and administrative expenses . (3,714,687) (4,361,317)
----------- -----------
Net operating income . . . . . . . . . 14,685,037 9,979,270
Interest income. . . . . . . . . . . . . . . . 1,413,236 980,740
Equity in earnings of unconsolidated
ventures . . . . . . . . . . . . . . . . . . 430,527 77,122
Interest and real estate taxes, net. . . . . . (680,821) (835,693)
----------- -----------
Net income . . . . . . . . . . . . . . $15,847,979 10,201,439
=========== ===========
Net income per Limited
Partnership Interest . . . . . . . . $ 38.84 21.62
=========== ===========
Cash distributions per
Limited Partnership
Interest . . . . . . . . . . . . $ 145.00 75.06
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
----------- -----------
Net income . . . . . . . . . . . . . . . . . . $15,847,979 10,201,439
Charges (credits) to net income not
requiring (providing) cash:
Depreciation and amortization. . . . . . . . 802,505 894,881
Equity in earnings of unconsolidated
ventures . . . . . . . . . . . . . . . . . (430,527) (77,122)
Provision for doubtful accounts. . . . . . . (26,284) (21,632)
Gain on sale of joint venture interest . . . -- (450,546)
Changes in:
Restricted cash. . . . . . . . . . . . . . . (1,919,681) (1,555,869)
Trade and other accounts receivable. . . . . (25,960,751) (15,858,477)
Real estate inventories:
Additions to real estate inventories . . . (49,310,531) (39,099,103)
Cost of sales. . . . . . . . . . . . . . . 64,921,884 41,624,332
Capitalized interest . . . . . . . . . . . (989,937) (1,610,999)
Capitalized real estate taxes. . . . . . . (708,638) (819,865)
Equity memberships . . . . . . . . . . . . . 136,426 1,125,013
Amounts due from affiliates, net . . . . . . (156,817) (246,825)
Prepaid expenses and other assets. . . . . . 784,198 (41,377)
Accounts payable, accrued expenses and
other liabilities. . . . . . . . . . . . . 1,542,885 962,583
Deposits and unearned income . . . . . . . . 3,202,778 6,024,036
----------- -----------
Net cash provided by
operating activities . . . . . . . 7,735,489 1,050,469
----------- -----------
Cash flows from investing activities:
Mortgages receivable . . . . . . . . . . . . -- 190,264
Acquisitions of property and equipment . . . (776,912) (716,241)
Joint venture distributions. . . . . . . . . 745,328 70,128
Proceeds from sale of joint venture
interest . . . . . . . . . . . . . . . . . -- 1,670,976
----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . (31,584) 1,215,217
----------- -----------
Cash flows from financing activities:
Proceeds from notes and mortgages payable. . 796,282 4,612,751
Payments of notes and mortgages payable. . . (183,832) (13,187,432)
Distributions to General Partner and
Associate Limited Partners . . . . . . . . (3,254,407) (1,685,514)
Distributions to Limited Partners. . . . . . (58,580,000) (30,322,706)
----------- -----------
Net cash used in
financing activities . . . . . . . (61,221,957) (40,582,901)
----------- -----------
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1999 1998
----------- -----------
Decrease in Cash and cash equivalents. . . . . (53,518,052) (38,317,305)
Cash and cash equivalents,
beginning of year. . . . . . . . . . . . . . 82,103,559 79,411,195
----------- -----------
Cash and cash equivalents,
end of period. . . . . . . . . . . . . . . . $28,585,507 41,093,890
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for mortgage and other
interest, net of amounts capitalized . . . $ -- 248,482
=========== ===========
Non-cash investing and financing
activities . . . . . . . . . . . . . . . . $ -- --
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1998,
which are included in the Partnership's 1998 Annual Report on Form 10-K
(File No. 0-16976) filed on March 31, 1999, 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 1998 Annual Report.
GENERAL
Capitalized Interest and Real Estate Taxes
Interest, including the amortization of loan fees, of $989,937 and
$1,610,999 was incurred for the three months ended March 31, 1999 and 1998,
respectively, all of which was capitalized. Interest payments, including
amounts capitalized, of $984,187 and $1,859,481 were made during the three
months ended March 31, 1999 and 1998, respectively. The decrease in
interest incurred and paid during the three months ended March 31, 1999
compared to the same period in 1998 is due to a decrease in the average
amount of debt outstanding during the period as the Partnership made
principal repayments on the term loan during 1998.
Real estate taxes of $1,389,459 and $1,655,558 were incurred for the
three months ended March 31, 1999 and 1998, respectively, of which $708,638
and $819,865 were capitalized, respectively. Real estate tax payments of
$51,674 and $66,386 were made during the three months ended March 31, 1999
and 1998, respectively. In addition, real estate tax reimbursements
totaling $8,460 and $256,774 were received from the Partnership's escrow
agent during the three months ended March 31, 1999 and 1998, 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 $641,590 and $733,966 was incurred for the
three months ended March 31, 1999 and 1998, respectively. Amortization of
other assets, excluding loan fees, of $98,415 was incurred for each of the
three months ended March 31, 1999 and 1998. Amortization of loan fees,
which is included in interest expense, of $62,500 was incurred for each of
the three months ended March 31, 1999 and 1998.
Partnership Distributions
During March 1999, the Partnership made a distribution for 1998 of
$58,580,000 to its Holders of Interests ($145.00 per Interest) and
$3,254,407 to the General Partner and Associate Limited Partners,
collectively. These distributions are the primary cause for the decrease
in Cash and cash equivalents at March 31, 1999 as compared to December 31,
1998.
<PAGE>
Reclassifications
Certain reclassifications have been made to the 1998 financial
statements to conform to the 1999 presentation.
NOTES AND MORTGAGES PAYABLE
At March 31, 1999, the balances outstanding on the term loan, the
revolving line of credit and the letter of credit facility were
approximately $41,667,000, $0 and $867,000, respectively. For the three
month period ended March 31, 1999, the combined effective interest rate for
the Partnership's credit facilities, including the amortization of loan
origination fees, and the effect of the interest rate swap agreements was
approximately 8.5% per annum.
Construction of the final building at Arvida's Grand Bay commenced in
1998, and in February 1999, the Partnership closed on a new line of credit
to be drawn upon if necessary to fund its construction. This line of
credit has a borrowing capacity of $23,150,000, matures on February 4, 2001
and bears interest, at the Partnership's option, at the relevant LIBOR rate
plus 2.00% per annum or the lender's prime rate. No borrowings have been
made under this line of credit as of the date of this report.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
In March 1999, the Pompano Park Joint Venture closed on the sale of
its commercial/industrial property on an "as is" basis to an unaffiliated
third party for a sale price of $2.9 million. The net closing proceeds
totaling approximately $2.7 million were disbursed to the joint venture's
lender in full satisfaction of the remaining balance outstanding on the
mortgage loan encumbering the property. As a result of the property's
sale, the joint venture and the Partnership have no future obligation to
the purchaser to fund costs related to the environmental clean-up of this
property. With respect to the environmental issues, the clean-up, which
began in July 1994, is in a "monitoring only" phase pursuant to an informal
arrangement with state environmental officials. There are no assurances
that further clean-up will not be required. If further action is required
and the previous owner is unable to fulfill all its obligations as they
relate to this environmental issue, the joint venture and ultimately the
Partnership may be obligated to the state for such costs. Should this
occur, the Partnership does not anticipate the cost of this clean-up to be
material to its operations.
TRANSACTIONS WITH AFFILIATES
The Partnership, subject to certain limitations, may engage affiliates
of the General Partner for property management, insurance and certain other
administrative services to be performed in connection with the
administration of the Partnership and its assets. The total of such costs
for the three months ended March 31, 1999 was approximately $31,100, all of
which was paid as of March 31, 1999. The total of such costs for the three
months ended March 31, 1998 was approximately $26,200. 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 $115,100 and $66,100 for the three months ended
March 31, 1999 and 1998, respectively, all of which were paid as of
March 31, 1999.
The Partnership receives reimbursements from or reimburses other
affiliates of the General Partner engaged in real estate activities 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. For the three month period ended March 31, 1999, the
<PAGE>
amount of such costs incurred by the Partnership on behalf of these
affiliates totaled approximately $228,100. At March 31, 1999, approxi-
mately $237,100 was owed to the Partnership which includes amounts owed
from the prior year, of which approximately $99,700 was received as of
May 6, 1999. For the three month period ended March 31, 1998, the
Partnership was entitled to reimbursements of approximately $470,400.
In November 1997, The St. Joe Company completed its acquisition of a
majority interest in St. Joe/Arvida Company, L.P. ("St. Joe/Arvida"), which
acquired the major assets of Arvida. The transaction did not involve the
sale of any assets of the Partnership, nor the sale of the General
Partner's interest in the Partnership. In connection with this
transaction, Arvida Company ("Arvida") entered into a sub-management
agreement with St. Joe/Arvida, effective January 1, 1998, whereby St.
Joe/Arvida provides (and is reimbursed for) a substantial portion of the
development and management supervisory and advisory services (and personnel
with respect thereto) to the Partnership that Arvida would otherwise
provide pursuant to its management agreement with the Partnership.
Effective January 1, 1998, St. Joe/Arvida employs most of the same
personnel previously employed by Arvida, and the services provided to the
Partnership pursuant to this sub-management agreement are provided by the
same personnel. St. Joe/Arvida is reimbursed for such services and
personnel on the same basis as Arvida under the management agreement, and
such reimbursements are made directly by the Partnership. Affiliates of
JMB Realty Corporation own a minority interest in St. Joe/Arvida.
For the three month periods ended March 31, 1999 and 1998, the
Partnership reimbursed St. Joe/Arvida or its affiliates approximately
$2,740,100 and $2,486,400, respectively, for the services provided to the
Partnership by St. Joe/Arvida pursuant to the sub-management agreement
discussed above. At March 31, 1999, the Partnership owed St. Joe/Arvida
approximately $124,500 for services provided pursuant to this agreements,
all of which was paid as of May 6, 1999. The Partnership also receives
reimbursement from St. Joe/Arvida for certain general and administrative
costs including, and without limitation, salary and salary-related costs
relating to work performed by employees of the Partnership on behalf of St.
Joe/Arvida. For the three month periods ended March 31, 1999 and 1998, the
Partnership was entitled to receive approximately $449,900 and $128,800,
respectively, from St. Joe/Arvida or its affiliates. Of this amount,
approximately $147,000 was owed to the Partnership at March 31, 1999, all
of which was received as of May 6, 1999.
The Partnership pays for certain general and administrative costs on
behalf of its clubs, homeowner associations and maintenance associations
(including salary and salary-related costs and legal fees). The
Partnership receives reimbursements from these entities for such costs.
For the three month periods ended March 31, 1999 and 1998, the Partnership
was entitled to receive approximately $453,400 and $279,000, respectively,
from these entities. At March 31, 1999, approximately $108,900 was owed to
the Partnership, of which approximately $56,900 was received as of May 6,
1999.
The Partnership, pursuant to certain agreements, provides management
and other personnel and services to certain of its equity clubs and
homeowners associations. Pursuant to these agreements, the Partnership is
entitled to receive management fees for the services provided to these
entities. Due to the timing of the cash flows generated from these
entities' operations, such fees are typically paid in arrears. For the
three months ended March 31, 1999 and 1998, the Partnership was entitled to
receive approximately $350,500 and $143,000, respectively. At March 31,
1999, approximately $1,213,500 was unpaid (including amounts owed from the
previous year), none of which was received as of May 6, 1999.
<PAGE>
The Partnership funds working capital advances and operating deficits
of its equity clubs, as well as operating deficits of its homeowners
associations as required or deemed necessary. The working capital advances
are non-interest bearing, short-term in nature, and are expected to be
reimbursed from future cash flows of the equity clubs. The funding of
operating deficits is expensed by the Partnership. The Partnership also
funds, at its option, certain capital expenditures of its equity clubs.
For the three months ended March 31, 1999 and 1998, the Partnership was
entitled to receive approximately $92,700 and $242,400, respectively. At
March 31, 1999, approximately $13,400 was owed to the Partnership, of which
approximately $1,900 was received as of May 6, 1999.
In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partners have deferred a portion of their distributions
of net cash flow from the Partnership totaling approximately $11,934,000 as
of March 31, 1999. This amount does not bear interest and is expected to
be paid in future periods subject to certain restrictions in the
partnership agreement of the Partnership and the Partnership's credit
facility. In addition, in connection with the settlement of certain
litigation, the General Partner and the Associate Limited Partners deferred
approximately $1,259,000 of their share of the August 1997 distribution
which was otherwise distributable to them, and such deferred distribution
amount was used by the Partnership to pay a portion of the legal fees and
expenses in such litigation. The General Partner and Associate Limited
Partners will be entitled to receive such deferred amount after the Holders
of Interests have received a specified amount of distributions from the
Partnership after July 1, 1996.
All amounts receivable from or payable to the General Partner or its
affiliates do not bear interest and are expected to be paid in future
periods.
COMMITMENTS AND CONTINGENCIES
As security for performance of certain development obligations, the
Partnership is contingently liable under standby letters of credit and
performance bonds for approximately $867,000 and $14,757,000, respectively,
at March 31, 1999. In addition, certain joint ventures in which the
Partnership holds an interest are also contingently liable under
performance bonds for approximately $1,020,000 at March 31, 1999.
On or about September 27, 1996, a lawsuit entitled Vanderbilt Income
and Growth Associates, L.L.C. and Raleigh Capital Associates L.P.,
individually and derivatively on behalf of Arvida/JMB Partners, L.P. v.
Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov,
Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C.,
Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood
Opportunity Fund, IV, L.P. and Barry Sternlicht, Defendants, and Arvida/JMB
Partners, L.P., nominal defendant, was filed in the Court of Chancery of
the State of Delaware in and for New Castle County, Civil Action No. 15238
("Raleigh action"). The Raleigh action was filed as a verified complaint
for declaratory and injunctive relief. Plaintiffs claimed that the
defendants, in entering into a financing commitment letter for a proposed
$160 million term loan from Starwood/Florida Funding L.L.C. (the "Starwood
financing"), violated, or aided and abetted, or participated in the
violation of, fiduciary duties owed to the Partnership and the Holders of
Interests, and put their personal interests ahead of the interests of the
Partnership and the Holders of Interests. The General Partner and the
Partnership filed a motion to dismiss the Raleigh action, which motion was
granted on November 7, 1996. In granting the motion, the Court held that
Raleigh was not a Limited Partner and did not have standing to file the
derivative claims. The Court further determined that Raleigh did not have
the right to vote. Plaintiffs appealed the November 7, 1996 dismissal
order. On December 12, 1996, the Delaware Supreme Court reversed the trial
court order on a procedural ground and remanded the case back to the trial
court for further proceedings.
<PAGE>
On December 16, 1996, the Partnership filed a counterclaim against
Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital
Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh
had no right to vote on Partnership matters. On January 28, 1997, the
trial court granted plaintiffs leave to dismiss their own complaint
concerning the Starwood financing, leaving the Partnership's counterclaim
pending.
By letter dated January 10, 1997, Raleigh requested admission as a
Substituted Limited Partner of the Partnership. The Partnership referred
the request to a special committee (the "Special Committee") consisting of
certain directors of the General Partner and the Special Committee
subsequently denied the request. On February 20, 1997, Raleigh filed a
reply and counterclaim against the Partnership, the General Partner, and
the Special Committee that sought, among other things, a declaration that
Raleigh had voting rights in the Partnership and that defendants breached
their fiduciary duties by failing to admit Raleigh as a Substituted Limited
Partner as well as injunctive relief, an award of damages, interest, fees,
and costs.
On or about February 28, 1997, Gladys Beasley, individually and as a
representative of a class of persons similarly situated, filed an
intervenor complaint for declaratory relief against the Partnership that
sought, among other things, a declaration that purchasers who obtained
Interests in the Partnership in the public offering and subsequent Holders
of Interests in the Partnership by assignment from original Holders have
the same voting rights in the Partnership, among other things, to remove
and replace the General Partner.
After trial of all claims in the Raleigh action, the Court held that a
reasonable investor could have read the operative agreements as providing
that subsequent Holders of Interests, such as Raleigh, have voting rights.
On the issue of whether the Special Committee properly denied Raleigh's
request for admission as a Substituted Limited Partner, the Court upheld
the denial of Raleigh's request. By order dated June 9, 1998, and after
appeal of this matter, the Delaware Supreme Court affirmed the trial court
on all issues.
On December 22, 1998, the Partnership and General Partner entered into
a settlement and release agreement with Raleigh pursuant to which the
Partnership and the General Partner, on behalf of themselves and their
respective officers, directors, partners and affiliates (including without
limitation members of the Special Committee), on the one hand, and Raleigh,
on behalf of itself and its partners and affiliates, on the other hand,
released their respective claims that were brought or could have been
brought in the Raleigh action. In addition, pursuant to the settlement and
release agreement, and to resolve, among other things, Raleigh's claim for
attorneys' fees and expenses, the Partnership paid Raleigh approximately
$2,047,000. Counsel for the intervenor class and Gladys Beasley filed its
own petition for attorneys' fees in the amount of $600,000 and expenses in
the amount of approximately $8,000. After a court hearing on the matter,
on May 7, 1999, the Court ordered the Partnership to pay fees and costs in
the approximate amount of $278,000.
The Partnership was named a defendant in a number of homeowner
lawsuits, certain of which purported to be class actions, that allegedly in
part arose out of or related to Hurricane Andrew, which on August 24, 1992
resulted in damage to a former community development known as Country Walk.
The homeowner lawsuits alleged, among other things, that the damage
suffered by the plaintiffs' homes and/or condominiums within Country Walk
was beyond what could have been reasonably expected from the hurricane
and/or was a result of the defendants' alleged defective design,
construction, inspection and/or other improper conduct in connection with
the development, construction and sales of such homes and condominiums,
including alleged building code violations. The various plaintiffs sought
varying and, in some cases, unspecified amounts of compensatory damages and
other relief.
<PAGE>
Several of these lawsuits alleged that the Partnership was liable,
among other reasons, as a result of its own alleged acts of misconduct or
as a result of the Partnership's alleged assumption of Arvida Corporation's
liabilities in connection with the Partnership's purchase of Arvida
Corporation's assets from Disney in 1987, which included certain assets
related to the Country Walk development. Pursuant to the agreement to
purchase such assets, the Partnership obtained indemnification by Disney
for certain liabilities relating to facts or circumstances arising or
occurring prior to the closing of the Partnership's purchase of the assets.
Over 80% of the Arvida-built homes in Country Walk were built prior to the
Partnership's ownership of the Community. The Partnership has tendered
each of the above-described lawsuits to Disney for defense and
indemnification in whole or in part pursuant to the Partnership's
indemnification rights. Where appropriate, the Partnership has also
tendered these lawsuits to its various insurance carriers for defense and
coverage. The Partnership is unable to determine at this time to what
extent damages in these lawsuits, if any, against the Partnership, as well
as the Partnership's cost of investigating and defending the lawsuits, will
ultimately be recoverable by the Partnership either pursuant to its rights
of indemnification by Disney or under contracts of insurance.
One of the Partnership's insurance carriers has been funding
settlements of various litigation related to Hurricane Andrew. In some,
but not all, instances, the insurance carrier has provided the Partnership
with written reservation of rights letters. The aggregate amount of the
settlements funded to date by this carrier is approximately $8.21 million.
The insurance carrier that funded these settlements pursuant to certain
reservations of rights has stated its position that it has done so pursuant
to various non-waiver agreements. The carrier's position was that these
non-waiver agreements permitted the carrier to fund settlements without
preventing the carrier from raising insurance coverage issues or waiving
such coverage issues. On May 23, 1995, the insurance carrier rescinded the
various non-waiver agreements currently in effect regarding the remainder
of the Hurricane Andrew litigation, allegedly without waiving any future
coverage defenses, conditions, limitations, or rights. For this and other
reasons, the extent to which the insurance carrier may recover any of these
proceeds from the Partnership is uncertain. Therefore, the accompanying
consolidated financial statements do not reflect any accruals related to
this matter.
Currently, the Partnership is involved in two subrogation lawsuits.
On April 19, 1993, a subrogation claim entitled Village Homes at Country
Walk Master Maintenance Association, Inc. v. Arvida Corporation et al., was
filed in the 11th Judicial Circuit for Dade County. Plaintiffs filed this
suit for the use and benefit of American Reliance Insurance Company
("American Reliance"). In this suit, as amended, plaintiffs seek to
recover damages and pre- and post-judgment interest in connection with
$10,873,000 American Reliance has allegedly paid, plus amounts it may have
to pay in the future, to the condominium association at Country Walk in the
wake of Hurricane Andrew. Disney is also a defendant in this suit. The
Partnership believes that the amount of this claim that allegedly relates
to units it built and sold is approximately $3,600,000. Plaintiffs also
seek a declaratory judgment seeking to hold the Partnership and other
defendants responsible for amounts American Reliance must pay in the future
to its insured as additional damages beyond the $10,873,000 previously
paid. The Partnership has filed motions directed to the complaint, as
amended, and the litigation is in the discovery stage. The Partnership
intends to vigorously defend itself. On or about May 10, 1996, a
subrogation claim entitled Juarez et al. v. Arvida Corporation et al. was
filed in the Circuit Court of the Eleventh Judicial Circuit in and for Dade
County. Plaintiffs filed this suit for the use and benefit of American
Reliance. In this suit, plaintiffs seek to recover damages, pre-and post-
judgment interest, costs and any other relief the Court may deem just and
proper in connection with $3,200,000 American Reliance allegedly paid on
specified claims at Country Walk in the wake of Hurricane Andrew. Disney
<PAGE>
is also a defendant in this suit. The Partnership is advised that the
amount of this claim that allegedly relates to units it sold is
approximately $350,000. The Partnership intends to defend itself
vigorously in this matter. The Partnership could be named in other
subrogation actions, and in such event, the Partnership intends to
vigorously defend itself in such actions. Due to the uncertainty of the
outcome of these subrogation actions, the accompanying consolidated
financial statements do not reflect any liabilities related to these
matters.
The Partnership has been named a defendant in a purported class action
entitled Lakes of the Meadow Village Homes, Condominium Nos. One, Two,
Three, Four, Five, Six, Seven, Eight, and Nine Maintenance Associations,
Inc., v. Arvida/JMB Partners, L.P. and Walt Disney World Company, Case No.
95-23003-CA-08, filed in the Circuit Court of the 11th Judicial Circuit in
and for Dade County, Florida. The original complaint was filed on or about
November 27, 1995 and an amended complaint, which purports to be a class
action, was filed on or about February 28, 1997. In the case, plaintiffs
seek damages, attorneys fees and costs on behalf of the 460 building units
they allegedly represent for, among other things, alleged damages
discovered in the course of making Hurricane Andrew repairs. Plaintiffs
allege that Walt Disney World Company is responsible for liabilities that
may arise in connection with approximately 80% of the buildings at the
Lakes of the Meadow Village Homes and that the Partnership is potentially
liable for the approximately 20% remaining amount of the buildings. In the
three count amended complaint, plaintiffs allege breach of building codes
and breach of implied warranties. In addition, plaintiffs seek rescission
and cancellation of various general releases obtained by the Partnership in
the course of the turnover of the community to the residents. Previously,
the trial court had granted the Partnership summary judgment against the
plaintiffs' claims, based on the releases obtained by the Partnership.
Plaintiffs appealed that ruling. The ruling was reversed on appeal, the
appellate court finding that there were issues of material fact which
precluded the entry of judgment for the Partnership, and the case was
remanded to the trial court for further proceedings. On or about April 9,
1999, plaintiffs supplied a budget estimate for repairs of the alleged
defects and damages based on a limited survey of nine buildings only.
Based on this limited survey and assuming that the same alleged defects and
damages show up with the same frequency in the entire 460 buildings,
plaintiffs estimate the total repairs to cost approximately $7.0 million.
Based on the allegations of the amended complaint, it would appear that
plaintiffs would seek to hold the Partnership responsible for approximately
$1.4 million of this amount. Discovery in this litigation is in its early
stages. The Partnership has not had an opportunity to examine the
buildings nor assess the alleged merits of the plaintiffs' report. The
Partnership is currently being defended by counsel for one of its insurance
carriers. The Partnership intends to vigorously defend itself by, among
other things, pursuing its defenses of release and otherwise.
The Partnership has been advised by Merrill Lynch that various
investors have sought to compel Merrill Lynch to arbitrate claims brought
by certain investors of the Partnership representing approximately 5% of
the total of approximately 404,000 Interests outstanding. 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 attorneys' fees and expenses, under the terms
of a certain Agency Agreement dated September 15, 1987 ("Agency Agreement")
with the Partnership relating to the sale of Interests through Merrill
Lynch on behalf of the Partnership. These claimants have sought and are
seeking to arbitrate claims involving unspecified damages against Merrill
Lynch based on Merrill Lynch's alleged violation of applicable state and/or
federal securities laws and alleged violations of the rules of the National
<PAGE>
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. The Agency Agreement generally provides that the
Partnership and its General Partner shall indemnify Merrill Lynch against
losses occasioned by any actual or alleged misstatements or omissions of
material facts in the Partnership's offering materials 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 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.
On or about October 16, 1995, a lawsuit was filed against the
Partnership and others in the Circuit Court of the 15th Judicial Circuit,
in and for Palm Beach County, Florida, entitled Council of Villages, Inc.
et al v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida/JMB
Partners, Ltd., Broken Sound Club, Inc., and Country Club Maintenance
Association, Inc. (the "Council of Villages" case). The multi-count
complaint, as amended, is brought as a class action, and individually, on
behalf of various residents of the Broken Sound Community, and alleges that
defendants engaged in various acts of misconduct in, among other things,
the establishment, operation, management and marketing of the Broken Sound
golf course and recreational facilities, as well as the alleged improper
failure to turn over such facilities to the Broken Sound homeowners on a
timely basis. Plaintiffs seek, through various theories, including but not
limited to breach of ordinance, fiduciary duty, fraud, constructive trust
and civil theft, damages in excess of $45 million, the appointment of a
receiver for the Broken Sound Club, other unspecified compensatory damages,
the right to seek punitive damages, treble damages, prejudgment interest,
attorneys' fees and costs. The Partnership believes that the lawsuit is
without merit and intends to vigorously defend itself in this matter.
On or about July 30, 1996, Savoy v. Arvida/JMB Partners, Arvida/JMB
Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound Club, Inc. was
filed against the Partnership and others in the Circuit Court of the 15th
Judicial Circuit, in and for Palm Beach County, Florida. The lawsuit is
filed as a three-count complaint for dissolution of the Broken Sound Club,
Inc. ("Club"), and seeks, among other things, the appointment of a
custodian or receiver for the Club, a determination that certain acts be
deemed wrongful, the return to the Club of in excess of $2.5 million in
alleged "operating profits", an injunction against the charging of certain
dues, an injunction requiring the Club to produce certain financial
statements, and such other relief as the Court deems just, fair and proper.
This action has been consolidated with the Council of Villages case. The
Partnership believes the lawsuit is without merit and intends to vigorously
defend itself.
<PAGE>
In April 1997, the Court issued an order certifying as a class action
claims respecting the alleged violation of the Boca Raton ordinances. Both
plaintiffs and defendants appealed the certification order. On appeal, the
appellate court approved certification of a class action for the following
counts: breach of ordinance, breach of fiduciary duty, civil theft (treble
damages), breach of a constructive trust and unjust enrichment. The
Partnership sought further review of the certification ruling, but relief
was denied by the Florida Supreme Court on May 6, 1999. Plaintiffs in the
Savoy action moved for an appointment of a receiver over the Club. The
Partnership moved to strike the motion and the Court granted the
Partnership's motion. The Partnership has filed a third-party complaint
for indemnification and contribution against Disney in these consolidated
actions in the event the Partnership is held liable for acts taken by a
subsidiary of Disney prior to the Partnership's involvement in the Club and
property. The parties to the Council of Villages case have filed cross
motions for summary judgement on various issues related to the case and
these motions are pending before the Court for decision. The Partnership
can give no assurances as to the outcome of these motions. The Council of
Villages case is set for trial on August 9, 1999, on all issues remaining
after the ruling on summary judgement.
The Partnership is also a defendant in several actions brought against
it arising in the normal course of business. It is the belief of the
General Partner, based on knowledge of facts and advice of counsel, that
the claims made against the Partnership in such actions will not result in
any material adverse effect on the Partnership's consolidated financial
position or results of operations.
The Partnership may be responsible for funding certain other ancillary
activities for related entities in the ordinary course of business which
the Partnership does not currently believe will have any material adverse
effect on its consolidated financial position or results of operations.
ASSETS HELD FOR DISPOSITION
The Partnership currently plans to sell the country club in its River
Hills community in Tampa, Florida. As a result, the Partnership
discontinued depreciating this asset in February 1999, and has classified
the club as Property and equipment held for disposition or sale on the
accompanying consolidated balance sheets at March 31, 1999. Results of
operations for the country club totaled approximately $0.2 million and $0.1
million for the three months ended March 31, 1999 and 1998, respectively,
and are included in Operating properties revenues and cost of revenues on
the accompanying consolidated statements of operations.
Results of operations for the three months ended March 31, 1998 also
include approximately $0.3 million from the Partnership's cable operation
in Weston, which was classified as an asset held for disposition until its
sale in October 1998.
ADJUSTMENTS
In the opinion of the General Partner, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation
have been made to the accompanying consolidated financial statements as of
March 31, 1999 and December 31, 1998 and for the three months ended
March 31, 1999 and 1998.
SUBSEQUENT EVENTS
In April 1999, distributions totaling $30,645 (approximately $.08 per
interest) were deemed to be paid to Holders of Interests, as they were
remitted to the North Carolina tax authority on their behalf for the 1998
non-resident withholding tax. Distributions totaling $1,702 were also
deemed to have been made during 1999 to the General Partner and Associate
Limited Partners, collectively, as such amount was also remitted to North
Carolina tax authority on their behalf.
<PAGE>
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 the Partnership and its operations.
Pursuant to Section 5.5 J of the Partnership Agreement, on October 23,
1997, the Board of Directors of the General Partner met and approved a
resolution selecting the option set forth in Section 5.5 J.(i)(c) of the
Partnership Agreement for the Partnership to commence an orderly
disposition of its remaining assets that is to be completed by the end of
October 2002.
At March 31, 1999 and December 31, 1998, the Partnership had
unrestricted Cash and cash equivalents of approximately $28,586,000 and
$82,104,000, respectively. The decrease in Cash and cash equivalents at
March 31, 1999 as compared to December 31, 1998 is due primarily to
distributions to partners and Holders of Interests made during March 1999
totaling approximately $62 million.
The General Partner has established a special committee (the "Special
Committee") consisting of certain directors of the General Partner to
review unsolicited offers for Interests. In addition, the Partnership has
engaged Lehman Brothers, Inc. ("Lehman") as a financial advisor to assist
the Special Committee in evaluating and responding to such offers. Lehman
was asked to render its estimate of the discounted present value (the
"Estimated Liquidation Value") of an Interest as of August 31, 1998 based
on the assumption that the Partnership commences an orderly liquidation in
October 1997 and completes the liquidation by October 2002.
During February 1999, First Commercial Guarantee ("FCG") commenced an
offer to acquire up to approximately 19,600 Interests, which represents
approximately 4.9% of the outstanding Interests. FCG's offer had a
purchase price of $300 per Interest (which was to be reduced by the $145
per Interest distribution made in March 1999 for an adjusted offer price of
$155 per Interest) and expired in March 1999. In arriving at the Estimated
Liquidation Value, Lehman relied upon the Partnership's estimate of the
gross cash distributions that the Holders of Interests would receive from
August 31, 1998 (exclusive of the $50 per Interest distribution made in
September 1998). (These estimated gross distributions are based on certain
assumptions that may or may not prove to be true. There are a number of
factors, including risk factors, that may cause the actual gross cash
distributions to vary from such estimates, and such variations could be
material.) These estimated gross distributions were then discounted to
reflect the present value of such distributions as of August 31, 1998,
which ranged from $425 to $455 per Interest, depending on the different
discount rates used. (Such amounts include the distribution of $145 per
Interest made in March 1999).
Based on its analysis, the Special Committee determined that with
respect to Holders of Interest who had the expectation of retaining their
Interests through an anticipated orderly liquidation of the Partnership's
assets by October 2002 and who had no current or anticipated need for
liquidity, the FCG offer was inadequate and not in the best interests of
such Holders of Interests. Accordingly, the Special Committee recommended
that such Holders of Interests reject the offer and not tender their
Interests pursuant to such offer. With respect to all other Holders of
Interests, the Special Committee expressed no opinion and remained neutral
in regard to the offer.
<PAGE>
At March 31, 1999, the balances outstanding under the term loan, the
revolving line of credit and the letter of credit facility were
approximately $41,667,000, $0 and $867,000, respectively. In February
1998, the Partnership prepaid the $12.5 million principal repayment on the
term loan scheduled for July 1998. In addition, in exchange for a rate
reduction of 50 basis points on its credit facility, the Partnership made
an additional $7.25 million prepayment on the term loan in August 1998. As
a result of this transaction, interest on the credit facility is now based,
at the Partnership's option, on the relevant LIBOR plus 1.75% per annum or
the lender's prime rate. In November 1998, the Partnership prepaid
$7,333,333 of the $12.5 million principal repayment on the term loan
scheduled for July 1999.
Construction of the final building at Arvida's Grand Bay commenced in
1998, and in February 1999, the Partnership closed on the new line of
credit to be drawn upon if necessary to fund its construction. This line
of credit has a borrowing capacity of $23,150,000, matures on February 4,
2001 and bears interest, at the Partnership's option, at the relevant LIBOR
rate plus 2.00% per annum or the lender's prime rate. No borrowings have
been made under this line of credit as of the date of this report.
In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partners have deferred a portion of their distributions
of net cash flow from the Partnership totaling approximately $11,934,000 as
of March 31, 1999. This amount does not bear interest and is expected to
be paid in future periods subject to certain restrictions contained in the
partnership agreement of the Partnership. In addition, in connection with
the settlement of certain litigation, the General Partner and the Associate
Limited Partners deferred approximately $1,259,000 of their share of the
August 1997 distribution which was otherwise distributable to them, and
such deferred distribution amount was used by the Partnership to pay a
portion of the legal fees and expenses in such litigation. The General
Partner and Associate Limited Partners will be entitled to receive such
deferred amount after the Holders of Interests have received a specified
amount of distributions from the Partnership after July 1, 1996.
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define a year. Consequently, any
computer programs that have time-sensitive software 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 or engage in other normal business activities. To be year
2000 compliant, a computer system must be able to do two things. First, it
must be capable of storing date-related information in a format that can
discern between the 20th and 21st centuries. Secondly, all computer
programs which access the stored information must be able to sort, collate,
and perform calculations properly on information that involves the current
and next century. In addition to computer programs, other date-sensitive
electronic devices including, but not limited to, copy machines,
thermostats, elevators, telephones and security systems could experience
various operational difficulties as a result of not being year 2000
compliant.
The Partnership has organized a team to review and prepare its
computer systems for the year 2000 compliancy. This team has completed an
internal assessment of its information system technology and determined a
need to upgrade portions of the Partnership's hardware and software so that
its computer systems would function properly with respect to dates in the
year 2000 and thereafter. The software upgrade was initiated in October
1997 and completed in May 1998 at an approximate cost of $110,000. A plan
has been developed to upgrade the Partnership's computer hardware including
its file servers, which is currently estimated to cost approximately
$300,000. This estimate includes the cost of testing the upgraded computer
<PAGE>
systems and replacing equipment which is not year 2000 compliant. Neither
of these amounts includes employee costs, since the Partnership does not
separately identify such costs for year 2000 purposes. The Partnership has
commenced its implementation of the hardware upgrade, which was previously
scheduled to be completed in the first quarter of 1999. However, such
implementation has been delayed due to the Partnership's decision to
utilize internal resources rather than incur the expense of outside
consultants to complete the hardware installations, and is currently
expected to be completed in the third quarter of 1999. The Partnership
began testing its computer systems in November 1998 to determine compliance
with the year 2000. Testing of certain of the Partnership's mission
critical computer systems, including financial, human resources and
payroll, is complete. As a result of this testing, it was concluded that
these mission critical systems are year 2000 compliant, and the Partnership
does not intend to develop a contingency plan for these aspects of its
information technology system. A test of the Partnership's internally
developed software packages, which are also deemed mission critical, is
currently expected to be completed in the second quarter of 1999. The
Partnership has not determined at this time whether any contingency plan is
necessary with respect to the internally developed software packages.
Testing performed to date has shown that the hardware upgrades currently
planned are the only such upgrades that will be required.
In addition, all third parties such as banks, insurance companies and
governmental agencies who exchange digital information with the Partnership
have been identified and contacted regarding the year 2000 compliancy of
the information being exchanged. Responses have been received from all of
these institutions, and the Partnership is currently testing the exchange
of information. These exchanges are not deemed critical to the operations
of the Partnership.
The Partnership's general brokerage operation utilizes an accounting
software package for internal reporting purposes. The vendor has completed
its year 2000 upgrade of this package. The Partnership will request the
upgrade from the vendor, which is to be provided at no additional cost to
the Partnership as such upgrade is included in its annual maintenance fee
paid to the vendor. Certain costs, which have not yet been estimated may
be incurred in connection with the installation of the upgraded software.
However, such costs, if incurred, are not expected to be material to the
Partnership's operations.
The Partnership is in the process of identifying its non-information
technology systems such as, but not limited to alarms, security gates,
locks and phone systems, and contacting the various vendors of those
systems for determining their year 2000 compliance. As of the date of this
report, the Partnership is waiting for responses from these vendors. To
the extent such responses are not received in the near future, the
Partnership will follow up with additional requests or research publicly
available systems information to determine the year 2000 compliance of such
systems. The Partnership expects to conduct testing of certain non-
informational technology systems that are considered significant, but
currently has no specific schedule for such testing. At this time, the
Partnership does not have an estimate of the amount of costs, if any, for
remediation relative to its non-information technology systems. The
Partnership has not developed a contingency plan, nor has it determined
whether it will develop a contingency plan, for its non-information
technology systems.
The Partnership does not exchange digital information with any of its
suppliers utilized in connection with the development and construction of
its communities. However, all vendors which are key to the success of its
operations such as suppliers of dry wall, lumber, and other materials were
sent a questionnaire to determine their year 2000 readiness. Responses
have been received from some, but not all, of these vendors. The
Partnership will attempt to contact any of these vendors from which no
response is received in the near future. Responses received to date from
suppliers do not indicate any material adverse effects on their operations
due to year 2000-related issues. To the extent such suppliers are unable
to perform services due to their year 2000-related issues, the Partnership
<PAGE>
would expect to seek other similar suppliers who are capable of performing
development and construction services. However, there is no assurance the
Partnership will be able to find alternative suppliers in each instance.
If the steps taken by the Partnership, its vendors, suppliers and
other third parties with whom the Partnership has material relationships
(i.e., banks, insurance companies and state agencies) to be year 2000
compliant are not successful, the Partnership could experience various
operational difficulties. These could include, among other things, an
inability to process transactions to the correct accounting period,
difficulties in posting general ledger interfaces, an inability to process
computer generated checks, bank transactions posted to the wrong periods,
and the failure of scheduling applications which are date-sensitive. In
addition, year 2000 failures experienced in government services could delay
essential services provided to the Partnership such as permitting and
inspections. If interruptions occur in obtaining the materials and
supplies necessary in the Partnership's homebuilding operation, or steps
taken by the Partnership to address non-information technology systems are
not successful, the Partnership could experience various other operational
difficulties. These could include, among other things, interruptions in
services provided by the Partnership's country clubs, the inability to
provide security services at the entrances to the Partnership's
communities, and disruptions in office services such as telephones,
elevators and heating and cooling systems. Such operating difficulties
could result in the Partnership's incurring unanticipated costs for
remediation and other expenses, and such amounts could be material. Since
the Partnership is still assessing various year 2000 issues, particularly
in regard to its non-information technology systems, it has not ascertained
a reasonably likely "worst case" scenario for year 2000 issues, nor does it
have an estimate of losses or liabilities that could be incurred as a
result of such scenario.
The foregoing discussion of year 2000 issues and the Partnership's
responses thereto are based on information presently known. The
Partnership is continuing its assessment and evaluation of various year
2000 issues, particularly with respect to its non-information technology
systems. The Partnership will also be relying on third parties,
particularly suppliers of construction-related materials, as to their year
2000 compliance. Accordingly, information concerning year 2000 issues, and
the Partnership's responses thereto including the nature, extent, timing
and cost of the Partnership's remediation efforts, other expenses, and
related costs are subject to change, and such changes could be material.
RESULTS OF OPERATIONS
The results of operations for the three months ended March 31, 1999
are primarily attributable to the development and sale or operation of the
Partnership's assets.
For the three months ended March 31, 1999, the Partnership (including
its consolidated ventures and its unconsolidated ventures accounted for
under the equity method) closed on the sale of 295 housing units, 13
homesites, and approximately 46 acres of developed and undeveloped land.
This compares to closings in the first quarter of 1998 of 202 housing units
and 18 homesites. Outstanding contracts ("backlog") as of March 31, 1999,
were for 786 housing units, 10 homesites and approximately 15 acres of
developed and undeveloped land tracts. This compares to a backlog as of
March 31, 1998 of 668 housing units, 53 homesites and approximately 80
acres of developed and undeveloped land tracts.
<PAGE>
The Partnership's Communities are in various stages of development,
with estimated remaining build-outs ranging from one to five years.
Notwithstanding the estimated duration of the build-outs, the Partnership
currently expects to complete its orderly liquidation by October 2002. The
Weston Community, located in Broward County, Florida, is the Partnership's
largest Community and is in its mid-stage of development. Also in their
mid-stages of development are the River Hills Country Club in Tampa,
Florida; the Water's Edge Community in Atlanta, Georgia; and The Cullasaja
Club, near Highlands, North Carolina. The Partnership's condominium
project on Longboat Key, Florida known as Arvida's Grand Bay and the
Jacksonville Golf & Country Club Community in Florida are both in their
late stages of development. Only builder units remain to be sold at
Jacksonville Golf & Country Club at March 31, 1999. Future revenues will
be impacted to the extent that there are lower levels of inventories
available for sale as the Partnership's remaining Communities approach or
undertake their final phases.
Housing revenues increased for the three month period ended March 31,
1999 as compared to the same period in 1998 due primarily to an increase in
the number of units closed as well as a change in the mix of product closed
at the Partnership's Weston Community. In addition, revenues recognized
under the percentage-of-completion method for the last building at Arvida's
Grand Bay also contributed to the increase in housing revenues for the
three months ended March 31, 1999 as compared to the same period in 1998.
These favorable variances were partially offset by decreased revenues at
Jacksonville Golf & Country Club due to the close out of the remaining
units in the fourth quarter of 1998.
The Partnership's current plan for the Weston Community includes an
increase in its home building operations, thereby resulting in a reduced
number of lots available for sale to third party builders. This is the
primary cause for the decrease in homesite revenues for the three month
period ended March 31, 1999 as compared to the same period in 1998. This
unfavorable variance is partially offset by an increase in revenues at the
Partnership's River Hills and Waters Edge Communities due to an increase in
the number of lots closed in those Communities.
Land and property revenues for the three month period ended March 31,
1999 were generated primarily from the sale of approximately 15 acres of
developed land in Weston. Revenues for the same period in 1998 were
generated primarily from the sale of the Partnership's approximate 33%
interest in the H.A.E. Joint Venture to one of its venture partners.
The decrease in revenues from Operating properties for the three
months ended March 31, 1999 as compared to the same period in 1998 is due
primarily to the sale of the Partnership's cable operation in Weston in
October 1998. This sale is also the primary cause for the decrease in the
gross operating profit margin from operating properties for 1999 as
compared to 1998.
Revenues from brokerage and other operations increased for the three
months ended March 31, 1999 as compared to the same period in 1998 due
primarily to increased commissions generated by the Partnership's resale
operations in Boca Raton, Florida.
Selling, general and administrative expenses decreased for the three
months ended March 31, 1999 as compared to the same period in 1998 due to a
decrease in the amount of legal fees incurred, as well as the refund of
prorated insurance premiums in January 1999 for several of the
Partnership's operating properties which were sold in prior periods.
The increase in interest income for the three month period ended
March 31, 1999 as compared to the same period in 1998 is due primarily to
an increase in the average amounts invested in short-term financial
instruments.
<PAGE>
During the first quarter of 1999, the Partnership received an
approximate $0.6 million distribution from the Tampa 301 Associates Joint
Venture. The amount distributed was in excess of the Partnership's
carrying value of its investment in this joint venture. The recognition of
income related to this excess distribution is the primary cause for the
increase in equity in earnings of unconsolidated ventures for the three
months ended March 31, 1999 as compared to the same period in 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Commitments and Contingencies Section of
Notes for a detailed discussion regarding certain lawsuits which allegedly
in part arose out of or related to Hurricane Andrew, which on August 24,
1992 resulted in damage to a former community development known as Country
Walk, which discussion is hereby incorporated herein by reference.
On or about September 27, 1996, a lawsuit entitled Vanderbilt Income
and Growth Associates, L.L.C. and Raleigh Capital Associates L.P.,
individually and derivatively on behalf of Arvida/JMB Partners, L.P. v.
Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov,
Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C.,
Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood
Opportunity Fund, IV, L.P. and Barry Sternlicht, defendants, and Arvida/JMB
Partners, L.P., nominal defendant, was filed in the Court of Chancery of
the State of Delaware in and for New Castle County, Civil Action No. 15238
("Raleigh action"). The Raleigh action was filed as a verified complaint
for declaratory and injunctive relief. Plaintiffs claimed that the
defendants, in entering into a financing commitment letter for a proposed
$160 million term loan from Starwood/Florida Funding L.L.C. (the "Starwood
financing"), violated, or aided and abetted, or participated in the
violation of, fiduciary duties owed to the Partnership and the Holders of
Interests, and put their personal interests ahead of the interests of the
Partnership and the Holders of Interests. In the first claim for relief,
plaintiffs sought a declaratory judgment that the terms of the Starwood
financing be declared null, void and unenforceable. In the second claim
for relief, plaintiffs asserted a claim derivatively on behalf of the
Partnership alleging, among other things, that the financing commitment
letter for the Starwood financing was not the product of a valid exercise
of business judgment. In addition to relief described above, plaintiffs
sought to preliminarily and permanently enjoin any actions in furtherance
of the financing commitment letter, an award of compensatory damages,
interest, costs and disbursements, including reasonable attorneys' and
experts' fees and such other relief as the Court might deem just and
proper. The General Partner and the Partnership filed a motion to dismiss
the Raleigh action, which motion was granted on November 7, 1996. In
granting the motion, the Court held that Raleigh was not a Limited Partner
and did not have standing to file the derivative claims. The Court further
determined that Raleigh did not have the right to vote. Plaintiffs asked
the Court to reconsider its ruling, but the Court denied the request to
change its ruling.
Plaintiffs appealed the November 7, 1996 dismissal order. On December
12, 1996, the Delaware Supreme Court reversed the trial court order on a
procedural ground. The Delaware Supreme Court concluded that the trial
court should not have considered matters outside of the pleadings in
dismissing the Raleigh action without providing the plaintiffs some limited
discovery. Accordingly, the Delaware Supreme Court remanded the case back
to the trial court for further proceedings.
On December 16, 1996, the Partnership filed a counterclaim against
Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital
Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh
had no right to vote on Partnership matters. On January 28, 1997, the
trial court granted plaintiffs leave to dismiss their own complaint
concerning the Starwood financing, leaving the Partnership's counterclaim
pending.
<PAGE>
By letter dated January 10, 1997, Raleigh requested admission as a
Substituted Limited Partner of the Partnership. The Partnership referred
the request to a special committee ("the Special Committee") consisting of
certain directors of the General Partner. On February 11, 1997, the
Special Committee denied the request. Thereafter, the Partnership
supplemented its counterclaim, as amended, to seek a court declaration that
Raleigh is not entitled to be admitted as a Substituted Limited Partner.
On February 20, 1997, Raleigh filed a reply and counterclaim against the
Partnership, the General Partner, and the Special Committee. The reply
counterclaim, sought among other things, a declaration that Raleigh has
voting rights in the Partnership and that defendants breached their
fiduciary duties by failing to admit Raleigh as a Substituted Limited
Partner. The reply counterclaim also sought to enjoin the Partnership, the
General Partner, and the Special Committee from refusing to admit Raleigh
as a Substituted Limited Partner, an award of damages, interest, fees, and
costs.
On or about February 28, 1997, Gladys Beasley, individually and as a
representative of a class of persons similarly situated, filed an
intervenor complaint for declaratory relief against the Partnership. In
the intervenor complaint, plaintiff sought a declaration that purchasers
who obtained Interests in the Partnership in the public offering and
subsequent Holders of Interests in the Partnership by assignment from
original Holders have the same voting rights in the Partnership, among
other things, to remove and replace the General Partner. In addition,
plaintiff Gladys Beasley sought an order adjudging and decreeing that the
intervenor action was properly maintained as a class, an award of her costs
and expenses of the litigation, and such other relief as the Court deemed
appropriate.
The trial of all claims in the Raleigh action was held on April 7,
1997 through April 9, 1997. In a memorandum opinion dated may 23, 1997,
the Court concluded that, while neither the partnership agreement nor the
assignment agreement of the Partnership expressly states whether subsequent
Holders of Interests have voting rights, a reasonable investor could have
read the operative agreements as providing that subsequent Holders of
Interests, such as Raleigh, have voting rights. The Partnership believed,
among other things, that the Court erred in its application of the law to
the facts on this issue and appealed the Court's decision on this aspect of
the case. On the issue of whether the Special Committee properly denied
Raleigh's request for admission as a Substituted Limited Partner, the Court
upheld the denial of Raleigh's request. By order dated June 9, 1998, and
after appeal of this matter, the Delaware Supreme Court affirmed the trial
court on all issues.
On December 22, 1998, the Partnership and General Partner entered into
a settlement and release agreement with Raleigh pursuant to which the
Partnership and the General Partner, on behalf of themselves and their
respective officers, directors, partners and affiliates (including without
limitation members of the Special Committee), on the one hand, and Raleigh,
on behalf of itself and its partners and affiliates, on the other hand,
released their respective claims that were brought or could have been
brought in the Raleigh action. In addition, pursuant to the settlement and
release agreement, and to resolve, among other things, Raleigh's claim for
attorneys' fees and expenses, the Partnership paid Raleigh approximately
$2,047,000. Counsel for the intervenor class and Gladys Beasley has filed
its own petition for attorneys' fees in the amount of $600,000 and expenses
in the amount of approximately $8,000. After a court hearing on the matter
on May 7, 1999, the Court ordered the Partnership to pay fees and costs in
the approximate amount of $278,000.
<PAGE>
On or about October 16, 1995, a lawsuit was filed against the
Partnership and others in the Circuit Court of the 15th Judicial Circuit,
in and for Palm Beach County, Florida, entitled Council of Villages, Inc.
et al v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida/JMB
Partners, Ltd., Broken Sound Club, Inc., and Country Club Maintenance
Association, Inc. (the "Council of Villages" case). The multi-count
lawsuit, as amended, is brought as a class action, and individually, on
behalf of various residents of the Broken Sound Community, and alleges that
defendants engaged in various acts of misconduct in, among other things,
the establishment, operation, management and marketing of the Broken Sound
golf course and recreational facilities, as well as the alleged improper
failure to turn over said facilities to the Broken Sound homeowners on a
timely basis. Plaintiffs seek, through various theories, including but not
limited to breach of ordinance, fiduciary duty, fraud, constructive trust
and civil theft, damages in excess of $45 million, the appointment of a
receiver for the Broken Sound Club, other unspecified compensatory damages,
the right to seek punitive damages, treble damages, prejudgment interest,
attorneys' fees and costs. The Partnership believes that the lawsuit is
without merit and intends to vigorously defend itself in this matter.
On or about July 30, 1996, Savoy v. Arvida/JMB Partners, Arvida/JMB
Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound Club, Inc. was
filed against the Partnership and others in the Circuit Court of the 15th
Judicial Circuit, in and for Palm Beach County, Florida. The lawsuit is
filed as a three-count complaint for dissolution of the Broken Sound Club,
Inc. ("Club"), and seeks, among other things, the appointment of a
custodian or receiver for the Club, a determination that certain acts be
deemed wrongful, the return to the Club of in excess of $2.5 million in
alleged "operating profits", an injunction against the charging of certain
dues, an injunction requiring the Club to produce certain financial
statements, and such other relief as the Court deems just, fair and proper.
This lawsuit has been consolidated with the Council of Village case. The
Partnership believes the lawsuit is without merit and intends to vigorously
defend itself.
In April 1997, the Court issued an order certifying as a class action
claims respecting the alleged violation of the Boca Raton ordinances. Both
plaintiffs and defendants appealed the certification order. On appeal, the
appellate court approved certification of a class action for the following
counts: breach of ordinance, breach of fiduciary duty, civil theft (treble
damages), breach of a constructive trust and unjust enrichment. The
Partnership sought further review of the certification ruling, but relief
was denied by the Florida Supreme Court on May 6, 1999. Plaintiffs in the
Savoy action moved for an appointment of a receiver over the Club. The
Partnership moved to strike the motion and the Court granted the
Partnership's motion. The Partnership has filed a third-party complaint
for indemnification and contribution against Disney in these consolidated
actions in the event the Partnership is held liable for acts taken by a
subsidiary of Disney prior to the Partnership's involvement in the Club and
property.
On August 27, 1991, the General Partner, on behalf of the Partnership,
initiated a lawsuit in the Circuit Court of Cook County (County Department,
Chancery Division), Illinois against The Walt Disney Company ("Disney").
The litigation arises out of the Partnership's acquisition of substantially
all of the real estate and other assets of Arvida Corporation, a subsidiary
of Disney, in September 1987. In the complaint filed on its behalf, the
Partnership alleges that under the terms of the contract with Disney for
the acquisition, the purchase price of the assets was to be reduced by the
amount of certain payments made prior to the closing (the "Closing") of the
transaction out of funds of Arvida Corporation in order to satisfy certain
obligations that were not assumed by the Partnership. The complaint also
alleges that the contract entitles the Partnership to (i) reimbursement by
Disney for amounts advanced by the Partnership to pay certain other claimed
obligations of Arvida Corporation, including certain post-Closing
adjustments, in connection with the acquisition and (ii) indemnification by
<PAGE>
Disney for additional costs and expenses incurred by the Partnership
subsequent to the Closing in order to remedy certain environmental
conditions that existed prior to the Closing. The complaint further
alleges that the Partnership has made various demands on Disney for payment
of these amounts and that Disney has refused to make such payments. The
Partnership seeks declaratory judgments that the Partnership is entitled to
a purchase price reduction from Disney and reimbursement or indemnification
by Disney for amounts advanced or costs and expenses incurred by the
Partnership for certain obligations of Arvida Corporation, together with
interest on all such amounts and costs. During the second quarter of 1992,
the Partnership received approximately $0.8 million in settlement of
portions of this claim. During July 1993, Disney filed an answer denying
the substantive allegations of the Partnership's complaint and raising
various affirmative defenses. In addition, Disney has filed a three count
counterclaim in which it seeks among other things: a complete accounting
of liabilities allegedly assumed but not discharged by the Partnership to
ascertain whether certain funds, not to exceed $2.9 million, are due Disney
in accordance with the purchase agreement; an unspecified amount of damages
exceeding $500,000 allegedly representing workers compensation and warranty
payments made by Disney, which Disney alleges are obligations of the
Partnership; an accounting for funds disbursed from a claims pool in the
amount of $3,000,000 established by the parties; and attorney fees and
costs. The Partnership believes it has meritorious defenses to these
counterclaims and will defend itself vigorously against them.
By order dated July 29, 1998, the court granted the Partnership's
motion for summary judgment against Disney on the issue of whether the
Partnership is entitled to a purchase price reduction under the terms of
the contract with Disney for the acquisition of substantially all of the
real estate and other assets of Arvida Corporation. By an order of the
same date, the court denied Disney's motion for summary judgment on the
issue of whether the Partnership is entitled to indemnification for various
environmental issues. The case is set for trial on June 7, 1999 on the
issue of damages the Partnership may be entitled to on the purchase price
reduction claim. Trial on all other issues is scheduled for July 26, 1999.
The Partnership and Disney are engaging in discussions which could lead to
an agreement to settle all issues raised in this litigation. There are no
assurances that a settlement agreement will in fact be finalized and
consummated. In the event the matter is not settled, the Partnership
intends to vigorously pursue its claims and defenses. There are no
assurances relating to the amount of damages that the Partnership may
receive or the amount of liability that the Partnership may incur in
connection with the remaining issues to be addressed by the court in the
event the settlement is not consummated.
Other than as described above, the Partnership is not subject to any
material pending legal proceedings, other than ordinary routine litigation
incidental to the business of the Partnership. However, reference is made
to the Commitments and Contingencies Section of the 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.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1. Amended and Restated Agreement of Limited Partnership.*
3.2. Assignment Agreement by and among the General Partner, the
Initial Limited Partner and the Partnership.*
27. Financial Data Schedule
------------------------------
* Previously filed with the Securities and Exchange
Commission as Exhibits 3 and 4, respectively, to the Partnership's Form 10-
K Report (File No. 0-16976) filed on March 27, 1990 and incorporated herein
by reference.
(b) No reports on Form 8-K have been filed since the beginning
of the last quarter of the period covered by this report.
<PAGE>
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 thereunto duly authorized.
ARVIDA/JMB PARTNERS, L.P.
BY: Arvida/JMB Managers, Inc.
(The General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Vice President
Date: May 12, 1999
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.
By: GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: May 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 43,842,359
<SECURITIES> 0
<RECEIVABLES> 40,142,290
<ALLOWANCES> 166,162
<INVENTORY> 147,009,826
<CURRENT-ASSETS> 0
<PP&E> 62,035,378
<DEPRECIATION> 28,083,853
<TOTAL-ASSETS> 275,783,574
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 163,784,098
<TOTAL-LIABILITY-AND-EQUITY> 275,783,574
<SALES> 97,402,569
<TOTAL-REVENUES> 97,402,569
<CGS> 79,002,845
<TOTAL-COSTS> 79,002,845
<OTHER-EXPENSES> 2,551,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,847,979
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,847,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,847,979
<EPS-PRIMARY> 38.84
<EPS-DILUTED> 38.84
</TABLE>
