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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
[_] 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: 1-10520
HEARTLAND PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 36-3606475
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
547 West Jackson Boulevard, Chicago, Illinois 60661
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(Address of principal executive offices) (Zip Code)
312/294-0440
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
Assets:
Cash............................................................... $ 3,992 $ 931
Restricted cash.................................................... 610 300
Marketable securities (at market).................................. 140 4,759
Accounts receivable (net).......................................... 446 530
Accrued interest receivable........................................ 1 13
Prepaid and other assets........................................... 414 456
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Total...................................................... 5,603 6,989
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Properties:
Buildings and other................................................ 2,588 1,633
Less Accumulated depreciation.............................. 932 853
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Net buildings and other............................................ 1,656 780
Land held for sale................................................. 1,256 1,286
Land held for development.......................................... 10,053 9,650
Capitalized costs.................................................. 8,724 9,335
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Net properties............................................. 21,689 21,051
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Total assets................................................... $27,292 $28,040
======= =======
Liabilities:
Accounts payable and accrued expenses.............................. $ 1,477 $ 673
Accrued real estate taxes.......................................... 1,164 1,334
Allowance for claims and liabilities............................... 2,311 2,660
Unearned rents and deferred income................................. 479 536
Dividend payable................................................... 0 2,719
Other liabilities.................................................. 284 96
Short-term loans................................................... 4,853 737
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Total liabilities.......................................... 10,568 8,755
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Partners' Capital:
General Partner.................................................... 40 66
Class A Limited Partners - 2,142,438 units authorized, issued and
outstanding....................................................... 7,114 9,639
Class B Limited Partner............................................ 9,570 9,582
Unrealized holding loss on marketable securities................... 0 (2)
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Total partners' capital.................................... 16,724 19,285
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Total liabilities and partners' capital............................ $27,292 $28,040
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2 of 17
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HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(dollars in thousands except per unit data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
Revenues: 1997 1996 1997 1996
--------- ------ ------ ------- ------
<S> <C> <C> <C> <C>
Property sales............................... $4,068 $5,503 $ 4,309 $6,834
Less: Cost of property sales................. 2,234 1,193 2,254 1,662
------ ------ ------- ------
Gross profit on property sale........... 1,834 4,310 2,055 5,172
Portfolio income............................. 15 70 47 269
Rental income................................ 207 240 889 802
Other revenue................................ 57 157 238 165
------ ------ ------- ------
Total net revenues...................... 2,113 4,777 3,229 6,408
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Operating expenses:
-------------------
Selling expenses............................. 448 99 1,095 328
General and administrative expenses.......... 1,557 1,399 4,301 4,060
Depreciation and amortization................ 29 28 78 82
Management fee............................... 106 106 318 318
------ ------ ------- ------
Total expenses.......................... 2,140 1,632 5,792 4,788
------ ------ ------- ------
Net Income (Loss).................. $ (27) $3,145 $(2,563) $1,620
====== ====== ======= ======
Net Income (Loss) allocated
to General Partner............ $ 0 $ 30 $ (26) $ 15
====== ====== ======= ======
Net Income (Loss) allocated to
Class B Limited Partner....... $ 0 $ 15 $ (12) $ 8
====== ====== ======= ======
Net Income (Loss) allocated to
Class A Limited Partners...... $ (27) $3,100 $(2,525) $1,597
====== ====== ======= ======
Net Income (Loss) per Class A
Limited Partnership Unit...... $ (.01) $ 1.45 $ (1.18) $ .75
====== ====== ======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash Flow From Operating Activities:
Net (loss) gain............................................................ $(2,563) $ 1,620
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization......................................... 78 82
Gain on sales of properties........................................... (2,055) (5,172)
Loss (gain) on sale of securities..................................... 3 (41)
Proceeds from sales of properties..................................... 4,309 6,834
Net change in assets and liabilities:
Decrease in allowance for claims & liabilities........................ (349) (265)
Decrease in accounts and interest receivables......................... 96 170
Increase (decrease) in accounts payable and accrued liabilities....... 740 (362)
Decrease in management fee due MLC.................................... (106) (107)
Net change in other assets and liabilities............................ 173 62
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Net cash flow provided by operating activities............................. 326 2,821
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Cash Flow From Investing Activities:
Capital expenditures including land and development costs.................. (3,304) (765)
Write-off of capitalized costs............................................. 335 0
Advance on note receivable................................................. 0 (55)
Amortization of security premium/discount.................................. (20) (13)
Net sales and maturities of marketable securities.......................... 4,637 (1,950)
Dividend paid.............................................................. (2,719) 0
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Net cash flow used in investing activities................................. (1,071) (2,783)
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Cash Flow From Financing Activities:
Proceeds from Note Payable Milwaukee Land Company.......................... 0 425
Advance on short-term loans................................................ 4,116 0
Increase in restricted cash................................................ (310) (300)
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Net cash flow provided by financing activities............................. 3,806 125
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Increase in cash........................................................... 3,061 163
Cash at December 31, 1996 and 1995......................................... 931 44
------- -------
Cash at September 30, 1997 and 1996........................................ $ 3,992 $ 207
======= =======
See accompanying notes to condensed consolidated financial statements. Page 4 of 17
</TABLE>
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1997
1. Consolidation
Heartland Partners, L.P. ("Heartland" or the "Company") was organized to engage
in the ownership, development, leasing and sale of real estate properties. CMC
Heartland Partners ("CMC") is an operating general partnership owned 99.99% by
Heartland and .01% by Milwaukee Land Company (now known as Heartland Technology,
Inc. ("MLC")). MLC is the general partner of Heartland (in such capacity, the
"General Partner"). In July 1993, Heartland Development Corporation ("HDC"), a
Delaware corporation, wholly-owned by Heartland, and CMC Heartland Partners I,
Limited Partnership ("CMCI"), a Delaware limited partnership in which HDC has a
1% general partnership interest and CMC has a 99% limited partnership interest,
were formed to undertake a planned housing development in Minnesota. CMC has a
100% membership interest in CMC Heartland Partners V ("CMCV"), CMC Heartland
Partners II ("CMCII") and CMC Heartland Partners III ("CMCIII"). CMCV was formed
in 1996 to construct houses in a master-planned residential community in St.
Marys, GA. CMCIII was formed in 1997 to develop a portion of the Kinzie street
property in Chicago, IL. CMCII was formed to participate in the Goose Island
Industrial park joint venture. CMC also owns 100% of the common stock of
Lifestyle Communities, Ltd. ("LCL") which serves as the exclusive sales agent as
well as the general contractor in the St. Marys development. Except as otherwise
noted herein, references herein to "Heartland" or the "Company" include CMC,
HDC, CMCI, CMCII, CMCIII, CMCV, and LCL.
All adjustments which are in the opinion of management necessary to fairly
present the financial statements have been made and are of a normal recurring
nature. The results of operations for the quarter and nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, the unaudited condensed
consolidated financial statements should be read in connection with Heartland's
audited consolidated financial statements for the fiscal year ended December 31,
1996, including the notes thereto.
2. Contingencies
It is Heartland's practice to evaluate environmental liabilities associated with
certain of its properties on a regular basis. An allowance is provided with
regard to potential environmental liabilities, including remediation, legal
fees, consulting fees, and government oversight costs, when it is probable that
a liability has been incurred and the amount of the liability can be reasonably
estimated. The amount of any liability is evaluated independently from any
claim for recovery from third parties with respect to the liability. If the
amount of the liability cannot be reasonably estimated but management is able to
determine that the amount of the liability is likely to fall within a range, and
no amount within that range can be determined to be the better estimate, then an
allowance in the minimum amount of the range is established. Environmental
costs which are incurred in connection with Heartland's development activities
are expensed or capitalized as appropriate.
Page 5 of 17
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HEARTLAND PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1997
Estimates which are used as the basis for allowances for the remediation of a
particular site are taken from evaluations of the range of potential costs for
that site made by independent consultants. These evaluations are estimates
based on professional experience but necessarily rely on certain significant
assumptions, including the specific remediation standards and technologies which
may be required by an environmental agency as well as the availability and cost
of subcontractors and disposal alternatives.
There is not sufficient information to reasonably estimate all the environmental
liabilities of which management is aware. Accordingly, management is unable to
determine whether environmental liabilities which management is unable to
reasonably estimate will or will not have a material effect on Heartland's
results of operations or financial condition.
At September 30, 1997, Heartland's allowance for claims and liabilities was
approximately $2.31 million of which $.4 million was for the resolution of non-
environmental claims and $1.91 million was for environmental matters.
3. Restricted Cash
On May 14, 1997, CMC established a line of credit agreement in the amount of $5
million with LaSalle National Bank, pursuant to which CMC pledged cash in the
amount of $500,000 as an interest reserve (See Note 4). On December 30, 1996,
CMCV signed a line of credit agreement in the amount of $3 million with
NationsBank pursuant to which CMCV pledged cash in the amount of $100,000 as an
interest reserve (See Note 4). Restricted cash also includes a $10,000
construction improvement bond held by the Osprey Cove Homeowners Association.
4. Short Term Loans
Advances against the LaSalle National Bank ("LNB") line of credit as described
in Note 3 bear interest at the prime rate of LNB plus 1.0% (9.50% at September
30, 1997). This loan is collateralized by certain parcels of land in Chicago, IL
which have a carrying value of $5,554,000 as of September 30, 1997. The
agreement terminates on May 1, 1998. Under the terms of the agreement, CMC is
required to maintain a minimum net worth in excess of $15 million, liquid assets
in excess of $1 million, is limited in incurring additional indebtedness and
restricted from making certain distributions. At September 30, 1997, $3,600,000
had been advanced to CMC by LNB against the line of credit.
On December 30, 1996, CMCV signed a revolving line of credit agreement in the
amount of $3 million with NationsBank ("NB") to acquire lots and construct
houses in the Osprey Cove subdivision, St. Marys, Georgia, pursuant to which
CMCV granted a first mortgage to NB on specific lots in said subdivision with a
carrying value of $2,758,000 at September 30, 1997. Advances against the
revolving line of credit bear interest at the prime rate of NB plus 1.0% (9.50%
at September 30, 1997). The agreement terminates on December 30, 1997, at which
time all outstanding advances and any accrued interest must be paid. In the
event the loan is not renewed, it will by its terms be extended for a period of
six months to allow for the completion of homes then under construction, but no
new construction may be commenced. Under the terms of the agreement, CMCV is
required to maintain a minimum net worth of $500,000 and a minimum leverage
ratio not to exceed of 4:1. At September 30, 1997, $1,253,000 had been advanced
to CMCV by NB against the revolving line of credit.
Page 6 of 17
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HEARTLAND PARTNERS, L.P.
September 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash flow for operating activities has been derived primarily from proceeds of
property sales, rental income, portfolio income and short-term borrowings. Cash
and marketable securities at market (excluding restricted cash) approximated
$4,132,000 at September 30, 1997. This is a decrease of approximately $1.6
million from December 31, 1996. The decrease in cash resulted primarily from the
payment of a $2.7 million distribution to unitholders and an operating loss of
$2.6 million offset by short-term borrowings of $4.1 million.
Proceeds from property sales provided cash flow of $4,068,000 for the third
quarter of 1997 compared to $5,503,000 for the third quarter of 1996. Third
quarter 1997 proceeds include $3,000,000 from the sale of the Humboldt Yard
property in Milwaukee, WI and $733,000 from the sale of an easement for fiber
optics cable. The 1996 third quarter proceeds include $4,400,000 from the sale
of 15.2 acres of the Goose Island property in Chicago, IL and $400,000 from the
sale of .65 acres located at North Ave. in Chicago, IL.
During the first nine months of 1997 approximately $3.3 million of capital
expenditures were made including land and development costs compared to $765,000
in 1996. Most of these expenditures were associated with new and contemplated
development at Osprey Cove in St. Marys, GA and Kinzie Station in Chicago, IL
and the rezoning of property in Fife, WA and Rosemount, MN.
At September 30, 1997, the Company owned 35 lots at Osprey Cove, had 12 accepted
contracts, 9 for home/lot packages and 3 for lots only and had 6 reservations.
The Company closed on its first home at Osprey Cove on September 29, 1997.
An application for rezoning of approximately 3.8 acres of the Company's Kinzie
Station site located in downtown Chicago, IL was approved by the City of
Chicago. Heartland has received zoning for a total of 381 units on this site.
The site plan includes town homes, mid-rise and high-rise buildings.
Heartland has also submitted an application for annexation and rezoning to the
City of Fife for a 178 acre parcel of land located in Pierce County, Washington.
The Company expects this annexation and rezoning process to be completed by the
end of the fourth quarter of 1997.
A preliminary site plan has been submitted for approval to the City of
Rosemount, MN for a 226 acre parcel of land. The Company expects site plan
approval in the fourth quarter of 1997.
The Company has entered into a letter agreement with the governmental agency
constructing a new baseball stadium in Milwaukee, WI for the Milwaukee Brewers.
The agreement contemplates a transaction in which the Company will provide land
to be used for parking in return for which the Company will receive certain
state-owned land, $450,000 in cash, will be relieved of potential environmental
liabilities related to the land provided for stadium parking and will obtain
access to local roads and highways. Management expects that this transaction can
be completed in the fourth quarter of 1997; however, there can be no assurance
as the agreement is subject to the execution of definitive documents.
Page 8 of 17
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HEARTLAND PARTNERS, L.P.
September 30, 1997
In September 1997, Heartland signed a contract for the development of 10.3 acres
of the Company's Chicago Goose Island Industrial Park. In connection with the
contract Colliers, Bennett and Kahnweiler, a Chicago-based real estate company,
Wooten Construction, and Heartland have formed a joint venture to develop
approximately 265,000 square feet of industrial space in the park over the next
three years. Heartland expects, that if the transaction is consummated, to
receive cash payments of approximately $2.25 million over the next three years
and a participation in the profits of the joint venture. The contract contains
closing conditions typical in such transactions. It is expected that the $.75
per unit balance of the previously announced proposed $2.00 per Unit
distribution will be paid following the closing and receipt of the initial
proceeds from this joint venture.
Portfolio income is derived from the investment of cash not required for
operating activities. As of September 30, 1997, Heartland had approximately
$140,000 (fair value) invested in marketable securities. All securities were
direct obligations of the U.S. Government. Portfolio income for the third
quarter of 1997 was $15,000 compared to $70,000 for the similar period of 1996.
The decrease in portfolio income is due to a decrease in interest income
resulting from a decrease in cash available for investment.
CMC has approximately 200 active leases on its real estate properties, which
generated $207,000 of revenue in the third quarter of 1997 compared to $240,000
in the third quarter of 1996. The decrease of $31,000 for the third quarter of
1997 as compared to 1996 is primarily due to the termination of a lease at the
Milwaukee Depot in Milwaukee, WI.
At September 30, 1997, Heartland had designated 18 sites, or approximately 934
acres with a book value of $10,053,000 for development. Approximately $1,106,000
was invested in the company's projects in the quarter ended September 30, 1997.
Osprey Cove accounted for $502,000 of these expenditures. Expenditures which
significantly increase the value and are directly identified to a specific
project are capitalized.
At September 30, 1997, the land held for sale was comprised of approximately
16,672 acres with a book value of approximately $1.3 million. It will be
disposed of in an orderly fashion. Currently, CMC does not foresee disposing of
all of the land before the end of 2000.
It is the Company's practice to evaluate environmental liabilities associated
with certain of its properties. Heartland monitors the potential exposure to
environmental costs on a regular basis and has recorded a liability in the
amount of $1.91 million at September 30, 1997 for possible environmental
liabilities, including remediation, legal fees, consulting fees and government
oversight costs. A reserve is established with regard to potential environmental
liabilities when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. The amount of any liability
is determined independently from any claim for recovery. If the amount of the
liability cannot be reasonably estimated, but management is able to determine
that the amount of the liability is likely to fall within a range, and no amount
within that range can be determined to be the better estimate, then a reserve in
the minimum amount of the range is accrued.
In addition, Heartland has established an allowance for resolution of non-
environmental claims of $.4 million.
Page 9 of 17
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HEARTLAND PARTNERS, L.P.
September 30, 1997
Heartland does not at this time anticipate that those claims or assessments for
which Heartland has established a reserve will have a material effect on the
Company's liquidity, financial position and results of operations beyond the
reserve which the Company has established for such claims and assessments. In
making this evaluation, the Company has assumed that it will continue to be able
to assert the bankruptcy bar arising from the reorganization of its predecessor
and that resolution of current pending and threatened claims and assessments
will be consistent with the Company's experience with similar previously
asserted claims and assessments.
While the timing of the payment in respect of environmental claims has not
significantly adversely affected the Company's cash flow or liquidity in the
past, management is not able to reasonably anticipate whether future payments
may or may not have a significant adverse effect in the future.
Heartland's management believes it will have sufficient funds available for
operating expenses. The Company has established a $5.0 million line of credit at
LaSalle National Bank ("LNB") and a $3.0 million line of credit at NationsBank,
N.A ("NB"). At September 30, 1997, $3,600,000 had been advanced to CMC by LNB
against the line of credit and $1,253,000 had been advanced to CMCV by NB
against the revolving line of credit. The NB line of credit agreement terminates
on December 30, 1997, at which time all outstanding advances and any accrued
interest must be paid. In the event the loan is not renewed, it will by its
terms be extended for a period of six months to allow for the completion of
homes under construction. Based on recent discussions with outside financing
sources, management believes that financing will be available for development
projects currently contemplated by Heartland.
Results of Operations
Operations for the third quarter and nine months ended September 30, 1997
resulted in a loss of $27,000 and $2,563,000 respectively, of which $27,000 and
$2,525,000 were allocated to the Class A limited partners, or $.01 and $1.18 per
Class A unit. Operations for the same quarter and nine months of 1996 resulted
in income of $3,145,000 and $1,620,000 respectively, of which $3,100,000 and
$1,597,000 was allocated to the Class A limited partners, or $1.45 and $.75 per
Class A unit.
Property sales for the third quarter and first nine months of 1997 were
$4,068,000 and $4,309,000 compared to $5,503,000 and $6,834,000 for the similar
period of 1996. Third quarter 1997 property sales include $3,000,000 from the
sale of the Humboldt Yard property in Milwaukee, WI and $773,000 from the sale
of a fiber optics easement. The 1996 third quarter property sales include
$4,400,000 from the sale of 15.2 acres of the Goose Island property in Chicago,
Il and $400,000 from the sale of .65 acres located at North Ave. In Chicago, IL.
Portfolio income for the third quarter of 1997 was $15,000 compared to $70,000
for the similar period of 1996. Portfolio income for the first nine months of
1997 was $47,000 compared to $269,000 for the same period of 1996. The decrease
in portfolio income is due to a decrease in interest income resulting from a
decrease in cash available for investment.
Rental income for the third quarter and first nine months of 1997 was $207,000
and $889,000 respectively compared to $240,000 and $802,000 for the similar
periods of 1996. The increase in rental income for the third quarter and first
nine months of 1997 as compared to 1996 is primarily due to the inclusion of
$113,000 in 1997 of back rent from a lessee in Minneapolis, MN offset by the
termination of a lease at the Milwaukee Depot in Milwaukee, WI.
Total expenses increased by $508,000 and $1,004,000 respectively for the third
quarter and first nine months of 1997 as compared to the third quarter and first
nine months of 1996. The increase in expenses is primarily due to increased
sales and marketing expenses at the Osprey Cove development project in St.
Marys, GA and the Kinzie Station development in Chicago, IL. In addition, the
year to date increase in expenses of $1,004,000 includes a write off of $481,000
in acquisition cost associated with a project in Lake Geneva, WI. The Company
was unable to reach a final agreement with any of the parties involved and is no
longer pursuing this project.
Page 10 of 17
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HEARTLAND PARTNERS, L.P.
September 30, 1997
PART II
OTHER INFORMATION
Item 1. Legal Proceedings and Contingencies
At September 30, 1997, Heartland's allowance for claims and liabilities was
approximately $2.3 million. During the quarter ended September 30, 1997, a
$99,000 provision was recorded in respect of environmental matters. Material
legal matters are discussed below.
Soo Line Matters
- ----------------
The Soo Line Railroad Company (the "Soo") has asserted that the Company is
liable for certain occupational injury claims filed after the consummation of an
Asset Purchase Agreement and related agreements ("APA") by former employees now
employed by the Soo. The Company has denied liability for each of these claims
based on a prior settlement with the Soo. The Soo has also asserted that the
Company is liable for the remediation of releases of petroleum or other
regulated materials at six different sites located in Iowa, Minnesota and
Wisconsin. The Company has denied liability based on the APA.
The occupational and environmental claims are all currently being handled by the
Soo, and the Company understands the Soo has paid settlements on many of these
claims. As a result of Soo's exclusive handling of these matters, the Company
has made no determination as to the merits of the claims and is unable to
determine the materiality of these claims.
Tacoma, Washington
- ------------------
In June 1997, the Port of Tacoma ("Port") filed a complaint in the United States
District Court for the Western District of Washington alleging that the Company
was liable under Washington state law for the cost of the Port's remediation of
a railyard sold in 1980 by the bankruptcy trustee for the Company's predecessor
to the Port's predecessor in interest.
Between 1991 and 1997, the Company, the Port and the Port's predecessor in
interest, litigated the Company's motion to bar liability arising out of the
sale of the railyard due to the reorganization of the Company's predecessor
before the United States District Court for the Northern District of Illinois,
which served as the reorganization court for the company's predecessor. On
February 28, 1996, the United States Court of Appeals for the Seventh Circuit
ruled that claims under certain Washington state environmental laws were not
barred by the reorganization of the Company's predecessor. The United States
Supreme Court subsequently denied a petition for Writ of Certiorari.
A draft feasibility study dated November 1994, submitted to the Washington
Department of Ecology on behalf of the Port estimates that the selected remedial
alternative for a portion of the site may cost approximately $3.65 million.
Management is not able to reasonably predict the outcome of this matter or, in
the event of an adverse outcome, to reasonably estimate the amount of the
Company's liability. Accordingly, management has only
Page 12 of 17
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HEARTLAND PARTNERS, L.P.
September 30, 1997
recorded a reserve in the amount of estimated attorney fees. Management believes
it has meritorious defenses in this matter and intends to pursue them
vigorously.
Wheeler Pit, Janesville, Wisconsin
- ----------------------------------
In November 1995 the Company agreed to settle a claim with respect to the
Wheeler Pit site near Janesville, Wisconsin. The settlement calls for the
Company to pay General Motors $800,000 at $200,000 annually for four years, 32%
of the monitoring costs for twenty-five years beginning in 1997 and 32% of
governmental oversight costs; such oversight costs not to exceed $50,000.
Payments of $200,000 were made in 1995, 1996 and 1997.
Miscellaneous Environmental Matters
- -----------------------------------
The Company has known environmental liabilities associated with certain of its
properties arising out of the activities of its predecessor or certain of its
predecessor's lessees and may have further material environmental liabilities as
yet unknown. The majority of the Company's known environmental liabilities stem
from the use of petroleum products, such as motor oil and diesel fuel, in the
operation of a railroad or in operations conducted by its predecessor's lessees.
The following is a summary of material known environmental matters, in addition
to those described above.
The Montana Department of Environmental Quality ("DEQ") has asserted that the
Company is responsible for some or all of the liability to remediate certain
properties in Montana sold by its predecessor's reorganization trustee prior to
the consummation of its predecessor's reorganization. The Company has raised
issues to its liability on grounds similar, but not identical, to the grounds on
which the Company denied liability in the litigation with the Port of Tacoma set
forth above. Following the Supreme Court's denial of the Company's petition for
writ of certiorari, counsel for DEQ has indicated DEQ's intention to file suit
to resolve these issues. Management is not able to express an opinion at this
time whether the cost of the defense of this liability or the environmental
exposure in the event of the Company's liability will or will not be material.
At thirteen separate sites, the Company has been notified that releases arising
out of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
The Company has petroleum groundwater remediation projects or long term
monitoring programs at Austin, Minnesota and Miles City, Montana.
In December 1989, the Minnesota Pollution Control Agency ("MPCA") added a site
which includes the Company's Pig's Eye Yard site in St. Paul, Minnesota to its
Permanent List of Priorities based on historical records and an initial
investigation of soil and groundwater conditions adjacent to Pig's Eye Yard.
Portions of this site had been leased to the City of St. Paul for a landfill and
to the Metropolitan Waste Control Commission for disposal of incinerator ash.
The site, which includes portions of the adjacent municipal waste water
treatment plant, was placed on the Superfund Accelerated Clean Up Model list in
1993. No potentially responsible parties ("PRPs") have been formally named at
this site.
Page 13 of 17
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1997
The Company has an interest in property at Moses Lake, Washington previously
owned and used by the United States government as an Air Force base. Sampling by
the Army Corps of Engineers has indicated the presence of various regulated
materials, primarily in the groundwater, which were most likely released as a
result of military or other third party operations. A portion of the Company's
property is located over a well field which was placed on the national priority
list in October 1992. The Company has not been named as a PRP.
The Company is voluntarily investigating the environmental condition of a
property in Minneapolis, Minnesota in connection with a contract to sell the
property. The investigation has indicated certain metal impacts in the soil and
groundwater. The Company's best estimate at this time is that the remediation
construction may cost between $425,000 and $881,000. The contract sale price is
$730,000.
In addition to the environmental matters set forth above, there may be other
properties, i), with environmental liabilities not yet known to the Company, or
ii), with potential environmental liabilities for which the Company has no
reasonable basis to estimate or, iii), which the Company believes the Company is
not reasonably likely to ultimately bear the liability, but the investigation or
remediation of which may require future expenditures. Management is not able to
express an opinion at this time whether the environmental expenditures for these
properties will or will not be material.
The Company has given notice to its insurers of certain of the Company's
environmental liabilities. Due to the high deductibles on these policies, the
Company has not yet demanded that any insurer indemnify or defend the Company.
Consequently, management has not formed an opinion regarding the legal
sufficiency of the Company's claims for insurance coverage.
The Company is also subject to other suits and claims which have arisen in the
ordinary course of business. In the opinion of management, reasonably possible
losses from these matters should not be material to the Company's results of
operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K; No report on Form 8-K was filed during the quarter
ended September 30, 1997.
Page 14 of 17
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND PARTNERS, L.P.
(Registrant)
Date: November 14, 1997 BY: /s/ Edwin Jacobson
-----------------------------------
Edwin Jacobson
President and Chief Executive Officer
Milwaukee Land Company
the General Partner
Date: November 14, 1997 BY: /s/ Leon F. Fiorentino
-----------------------------------
Leon F. Fiorentino
Vice-President, Secretary
and Treasurer of
Milwaukee Land Company,
the General Partner
Page 15 of 17
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1997
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description Sequential Page Number
- -------------- ----------- ----------------------
<S> <C> <C>
27 Financial Data Schedule 16
</TABLE>
Page 16 of 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,602
<SECURITIES> 138
<RECEIVABLES> 446
<ALLOWANCES> 0
<INVENTORY> 24,277
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 932
<TOTAL-ASSETS> 27,292
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,724
<TOTAL-LIABILITY-AND-EQUITY> 27,292
<SALES> 4,309
<TOTAL-REVENUES> 5,483
<CGS> 2,254
<TOTAL-COSTS> 2,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,563)
<EPS-PRIMARY> (1.18)<F1>
<EPS-DILUTED> (1.18)<F1>
<FN>
<F1> EPS - primary and EPS - diluted represent net loss allocated to Class A
Limited Partners per Class A Limited Partnership Unit
</FN>
</TABLE>
