<PAGE>
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 March 31, 1997
-------------------
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 (I.R.S. Employer
incorporation 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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Page 1 of 15
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
Assets:
Cash................................................................ $ 753 $ 931
Restricted cash..................................................... 410 300
Marketable securities (at market)................................... 443 4,759
Accounts receivable (net)........................................... 510 530
Accrued interest receivable......................................... 0 13
Prepaid and other assets............................................ 454 456
--------- ------------
Total......................................................... 2,570 6,989
--------- ------------
Properties:
Buildings and other................................................. 1,636 1,633
Less Accumulated depreciation................................. 877 853
--------- ------------
Net buildings and other............................................. 759 780
Land held for sale.................................................. 1,279 1,286
Land held for development........................................... 9,703 9,650
Capitalized costs................................................... 9,491 9,335
--------- ------------
Net properties................................................ 21,232 21,051
--------- ------------
Total assets..................................................... $ 23,802 $ 28,040
========= ============
Liabilities:
Accounts payable and accrued expenses............................... $ 387 $ 673
Accrued real estate taxes........................................... 1,303 1,334
Allowance for claims and liabilities................................ 2,456 2,660
Unearned rents and deferred income.................................. 529 536
Dividend payable.................................................... 0 2,719
Other liabilities................................................... 208 96
Short-term loans.................................................... 880 737
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Total liabilities............................................. 5,763 8,755
--------- ------------
Partners' Capital:
General Partner..................................................... 53 66
Class A Limited Partners - 2,142,438 units authorized, issued and
outstanding....................................................... 8,411 9,639
Class B Limited Partner............................................. 9,576 9,582
Unrealized holding loss on marketable securities.................... (1) (2)
--------- ------------
Total partners' capital....................................... 18,039 19,285
--------- ------------
Total liabilities and partners' capital............................. $ 23,802 $ 28,040
========= ============
See accompany notes to condensed consolidated financial statements. Page 2 of 15
</TABLE>
<PAGE>
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED
MARCH 31, 1997 AND MARCH 31, 1996
(dollars in thousands except per unit data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1997 1996
--------- --------
<S> <C> <C>
Revenues:
---------
Property sales........................ $ 121 $ 137
Less: Cost of property sales......... 7 40
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Gross profit on property sales.... 114 97
Portfolio income...................... 24 147
Rental income......................... 332 245
Other revenue......................... 12 1
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Total net revenues................ 482 490
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Operating expenses:
------------------
Selling expenses...................... 115 108
General and administrative expenses... 1,486 1,280
Depreciation and amortization......... 22 27
Management fee........................ 106 106
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Total expenses.................... 1,729 1,521
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Net Loss.......................... $(1,247) $(1,031)
======= =======
Net (Loss) allocated
to General Partner............. $ (13) $ (10)
======= =======
Net (Loss) allocated to
Class B Limited Partner........ $ (6) $ (5)
======= =======
Net (Loss) allocated to
Class A Limited Partners....... $(1,228) $(1,016)
======= =======
Net (Loss) per Class A
Limited Partnership Unit....... $ (.57) $ (.47)
======= =======
</TABLE>
<PAGE>
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash Flow From Operating Activities:
Net (loss)............................................................. $(1,247) $(1,031)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
Depreciation and amortization........................................ 22 27
(Accretion) amortization of security (premium)/discount.............. (15) 0
Gain on sales of properties.......................................... (114) (97)
Loss (gain) on sale of securities.................................... 2 (55)
Proceeds from sales of properties.................................... 121 137
Net change in assets and liabilities:
(Decrease) increase in allowance for claims & liabilities............ (204) 55
Decrease in accounts and interest receivables........................ 33 272
Increase (decrease) in accounts payable and accrued liabilities...... 2 (318)
(Decrease) in management fee due MLC................................. (319) (319)
Net change in other assets and liabilities........................... 107 (56)
------- -------
Net cash flow (used in) operating activities........................... (1,612) (1,385)
------- -------
Cash Flow From Investing Activities:
Capital expenditures including land and development costs.............. (548) (188)
Write-off of capitalized costs......................................... 335 0
Net sales and maturities of marketable securities...................... 4,333 1,828
Dividend paid.......................................................... (2,719) 0
------- -------
Net cash flow provided by investing activities......................... 1,401 1,640
------- -------
Cash Flow From Financing Activities:
Proceeds from Note Payable Milwaukee Land Company...................... 0 425
Advance on short-term loans............................................ 143 0
Increase in restricted cash............................................ (110) (300)
------- -------
Net cash flow provided by financing activities......................... 33 125
------- -------
(Decrease) increase in cash............................................ (178) 380
Cash at December 31, 1996 and 1995..................................... 931 44
------- -------
Cash at March 31, 1997 and 1996........................................ $ 753 $ 424
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
page 4 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(unaudited)
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 ("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. HDC also has a 1% membership interest
in CMC Heartland Partners V, LLC ("CMCV"). CMC has a 99% membership interest in
CMCV which was formed in 1996 to construct houses in a master-planned
residential community in St Marys, GA. 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, 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 ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 interim statements.
These reclassifications have not changed the 1996 results.
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 15
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HEARTLAND PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(unaudited)
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 March 31, 1997, Heartland's allowance for claims and liabilities was
approximately $2.5 million of which $.4 million was for the resolution of non-
environmental claims and $2.1 million was for environmental matters.
3. Restricted Cash
On March 15, 1996, CMC signed a line of credit agreement in the amount of $3
million with LaSalle National Bank ("LNB"), pursuant to which CMC pledged cash
in the amount of $300,000 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 ("NB"), 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 LNB line of credit as described in Note 3 bear interest at
the prime rate of LNB plus 1.0% (9.50% at March 31, 1997). This loan is
collateralized by certain parcels of land in Chicago, IL which have a carrying
value of $5,168,000 as of March 31, 1997. The agreement terminates on May 14,
1997. Under the terms of the agreement, CMC is required to maintain a minimum
net worth in excess of $17 million, liquid assets in excess of $1 million, is
limited in incurring additional indebtedness and restricted from making certain
distributions. At March 31, 1997, $300,000 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 to acquire lots and construct houses in
the Osprey Cove subdivision, St. Marys, Georgia, pursuant to which CMC granted a
first mortgage to NB on specific lots in said subdivision with a carrying value
of $1,255,000 at March 31, 1997. Advances against the revolving line of credit
bear interest at the prime rate of NB plus 1.0% (9.25% at March 31, 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
Page 6 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 1997
is not renewed, it will be extended for a period of six months to allow for the
completion of homes then under construction, but no new construction shall 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 March 31, 1997, $580,000 had been advanced to CMCV by NB against the
revolving line of credit.
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 and portfolio income. Cash and marketable
securities at market (excluding restricted cash) approximated $1.2 million at
March 31, 1997 This is a decrease of approximately $4.5 million from December
31, 1996. The decrease in cash and marketable securities resulted primarily from
the payment of a $2.7 million distribution to unitholders and operating
activities totalling $1.6 milliion for the first quarter of 1997.
Proceeds from property sales provided cash flow of $121,000 for the first
quarter of 1997 compared to $137,000 for the first quarter of 1996. Management
anticipates the closing of approximately $4,000,000 for the balance of the 1997.
This includes $3,000,000 for the sale of a major parcel in Milwaukee, WI for
which the Company has a signed contract. Management expects that this contract
will close in the fourth quarter of 1997. However, there can be no assurance as
the contract contains various conditions to closing, some of which are outside
of the control of the Company.
At March 31, 1997, there were three homes under contract at Osprey Cove in St.
Marys, GA. These contracts are expected to close in the third quarter of 1997.
Heartland has also entered into a letter of intent for the development of 10.3
acres of the Company's downtown Chicago Goose Island Industrial Park. Under the
agreement Heartland, Colliers, Bennet and Kahnweiler, a Chicago-based real
estate company and Wooten Construction, will form a joint venture to develop
over 300,000 square feet of industrial space in the park over the next three
years. Heartland expects 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 joint venture is expected to close in the second quarter of
1997. The letter of intent contains contingencies 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.
The Company had previously signed letters of intent for a project in Lake
Geneva, Wisconsin which named the Company as the exclusive builder for certain
properties controlled by Geneva National Real Estate Group, LLC and Bank One at
Geneva National 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. At March 31, 1997, Heartland had incurred approximately $481,000 in
acquisition costs associated with this project, which were written off in the
first quarter of 1997.
Page 7 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 1997
An application for rezoning of approximately 3.8 acres of the Companys' Kinzie
Park site located in downtown Chicago, IL was submitted on March 17, 1997 to the
City of Chicago. Heartland expects to build approximately 300 units on this
site. Heartland expects the rezoning process to be completed in the third
quarter of 1997.
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 third quarter of 1997.
Portfolio income is derived from the investment of cash not required for
operating activities. As of March 31,1997, Heartland had approximately $443,000
(fair value) invested in marketable securities. All securities were direct
obligations of the U.S. Government. Portfolio income for the first quarter of
1997 was $24,000 compared to $147,000 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 $332,000 of revenue in the first quarter of 1997 compared to $245,000
in the first quarter of 1996. The increase of $87,000 for 1997 as compared to
1996 is primarily due to the collection of additional rent from a lessee in
Minneapolis, MN. This lease is expected to generate an additional $60,000 for
the balance of 1997 as compared to 1996.
At March 31, 1997, Heartland had designated 19 sites, or approximately 940 acres
with a book value of $9,703,000 for development. Capitalized expenditures at
these sites were $492,000 for the three months ended March 31, 1997, which
included $353,000 at Osprey Cove, compared to $188,000 for the similar period of
1996. At March 31, 1997, capitalized costs on development projects totaled $9.5
million. Expenditures which significantly increase the value and are directly
identified to a specific project are capitalized.
At March 31, 1997, the land held for sale was comprised of approximately 16,717
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 the year 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 $2.1 million at March 31, 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 8 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 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 predecessors
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 effected 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 $3.0 million line of credit
at LaSalle National Bank ("LNB") and a $3.0 million line of credit at
NationsBank, N.A ("NB"). At March 31, 1997, $300,000 had been advanced to CMC
by LNB against the line of credit and $580,000 had been advanced to CMCV by NB
against the revolving line of credit. 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 quarter ended March 31, 1997 resulted in a net loss of
$1,247,000, of which $1,228,000 was allocated to the Class A limited partners,
or $.57 per Class A unit. Operations for the same quarter of 1996 resulted in a
loss of $1,031,000, of which $1,016,000 was allocated to the Class A limited
partners, or $.47 per Class A unit.
Property sales for the first quarter of 1997 were $121,000 compared to $137,000
for the first quarter of 1996. Property sales in the first quarter of 1997 were
comprised of parcels of raw land, while 1996 first quarter property sales
included $39,000 for the sale of a lot at the Willow Bluff development in
Hartland, WI.
Portfolio income for the first quarter of 1997 was $24,000 compared to $147,000
for the first quarter 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 first three months of 1997 was $332,000 compared to
$245,000 for the similar period of 1996. The increase in rental income for the
first quarter of 1997 as compared to 1996 is due to the inclusion in the first
quarter of 1997 of $87,000 of back rent from a lessee in Minneapolis, MN.
Total expenses for the first quarter of 1997 were $1,729,000 compared to
$1,521,000 for the same period of 1996. The increase of $208,000 for the first
quarter of 1997 as compared to the first quarter of 1996 is primarily due to an
increase in acquisition expense related to the write-off of the costs incurred
for the Geneva National project.
Page 9 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 1997
PART II
OTHER INFORMATION
Item 1. Legal Proceedings and Contingencies
At March 31, 1997, Heartland's allowance for claims and liabilities was
approximately $2.5 million. During the quarter ended March 31, 1997, a $6,300
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 in 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 November 1991, the Company moved the United States District Court for the
Northern District of Illinois, which acted as the reorganization court for the
reorganization of its predecessor (the "Reorganization Court") to bar claims
asserted by the Union Pacific Railroad Company ("Union Pacific") arising out of
a 1980 sale by its predecessors reorganization trustee of a rail yard in Tacoma,
Washington to Union Pacific. Union Pacific asserted claims against the Company
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA"), state environmental law and the sale contract. Later in
November 1991, Union Pacific filed suit in the United States District Court for
the Western District of Washington asserting essentially the same claims which
the Company moved the Reorganization Court to bar. The litigation in Washington
was stayed pending resolution of the Company's motion to bar Union Pacific's
claims before the Reorganization Court.
On August 18, 1993, the Seventh Circuit affirmed the bar with respect to Union
Pacific's claims under CERCLA and remanded the matter back to the Reorganization
Court for further findings with respect to Union Pacific's claims under state
law. On February 28, 1996, the Seventh Circuit held that the Union Pacific's
claim under Washington environmental law was not barred by its predecessor's
reorganization and subsequently denied the Company's motion for rehearing. On
January 21, 1997, the United States Supreme Court denied the Company's petition
for Writ of Certiorari. Counsel for Union Pacific has indicated that Union
Pacific intends to pursue the litigation in the Western District of Washington.
Page 10 of 15
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HEARTLAND PARTNERS, L.P.
March 31, 1997
A draft feasibility study dated November 1994, submitted to the Washington
Department of Ecology on behalf of a proposed purchaser of the site 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 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 oversite costs; such oversite costs not to exceed $50,000.
Payments of $200,000 were made in 1995 and 1996.
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 Union Pacific 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, Miles City, Montana, and Milwaukee,
Wisconsin.
Page 11 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 1997
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.
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 March 31, 1997.
Page 12 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 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: May 15, 1997 BY: /s/ Edwin Jacobson
----------------------
Edwin Jacobson
President and Chief Executive Officer
Milwaukee Land Company,
the General Partner
Date: May 15, 1997 BY: /s/ Leon F. Fiorentino
---------------------------
Leon F. Fiorentino
Vice-President, Secretary
and Treasurer of
Milwaukee Land Company,
the General Partner
Page 13 of 15
<PAGE>
HEARTLAND PARTNERS, L.P.
March 31, 1997
EXHIBIT INDEX
-------------
Exhibit Number Description Sequential Page Number
- -------------- ----------- ----------------------
27 Financial Data Schedule 15
Page 14 of 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,163
<SECURITIES> 443
<RECEIVABLES> 510
<ALLOWANCES> 0
<INVENTORY> 22,109
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 877
<TOTAL-ASSETS> 23,802
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,039
<TOTAL-LIABILITY-AND-EQUITY> 23,802
<SALES> 121
<TOTAL-REVENUES> 489
<CGS> 7
<TOTAL-COSTS> 7
<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> (1,247)
<EPS-PRIMARY> (.57)<F1>
<EPS-DILUTED> (.57)<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>
