<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 September 30, 1999
------------------
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.
- -------------------------------------------------------------------------------
(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
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
312/294-0440
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
______________________________________________________________________________
(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
-----
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets..................... 3
Condensed Consolidated Statements of Operations........... 4
Consolidated Statements of Cash Flows..................... 5
Notes to Consolidated Financial Statements................ 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................12
Item 3 Quantitative and Qualitative Disclosures About Market Risk.....20
PART II. OTHER INFORMATION
Item 1 Legal Proceedings and Contingencies............................21
Item 5 Other Information............................................. 23
Item 6 Exhibits and Reports on Form 8-K...............................24
Signatures................................................25
Page 2 of 26
<PAGE>
PART I
FINANICAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 AND December 31, 1998
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets:
Cash $ 198 $ 1,115
Restricted cash 3,506 2,564
Marketable securities (at market) - 149
Accounts receivable (net) 306 353
Due from affiliate 484 442
Prepaid and other assets 277 278
Investment in joint venture 359 278
------------- ------------
Total 5,130 5,179
------------- ------------
Property:
Buildings and other 2,548 2,231
Less accumulated depreciation 1,035 931
------------- ------------
Net buildings and other 1,513 1,300
Land held for sale 831 930
Housing inventories 22,146 13,978
Land held for development 6,212 6,212
Capitalized predevelopment costs 7,371 5,632
------------- ------------
Net properties 38,073 28,052
------------- ------------
Total assets $ 43,203 $ 33,231
============= ============
Liabilities:
Notes payable $ 27,271 $ 13,492
Accounts payable and accrued expenses 2,163 2,636
Management fee due affiliate - 283
Accrued real estate taxes 975 1,075
Allowance for claims and liabilities 2,781 2,762
Unearned rents and deferred income 1,773 1,862
Other liabilities 2,455 1,712
------------- ------------
Total liabilities 37,418 23,822
------------- ------------
Partners' Capital:
General Partner - -
Class A Limited Partners-2142 units authorized,
issued and outstanding - -
Class B Limited Partner 5,785 9,409
------------- ------------
Total partners' capital 5,785 9,409
------------- ------------
Total liabilities and partners' capital $ 43,203 $ 33,231
============= ============
See accompanying notes to condensed consolidated financial statements.
Page 3 of 26
</TABLE>
<PAGE>
HEARTLAND PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED
September 30, 1999 AND September 30, 1998
(dollars in thousands except per unit data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income:
Property sales $ 2,980 $ 753 $ 7,542 $ 3,005
Less: Cost of property sales 2,696 795 6,660 2,918
------- ------- ------- -------
Gross profit on property sales 284 (42) 882 87
------- ------- ------- -------
Operating Expenses:
Selling expenses 930 953 2,674 2,736
General and administrative expenses 765 1,795 2,290 3,764
Real estate taxes 68 326 209 394
------- ------- ------- -------
Total operating expenses 1,763 3,074 5,173 6,894
------- ------- ------- -------
Net operating income (1,479) (3,116) (4,291) (6,807)
Other Income and (Expense):
Portfolio income 16 27 49 46
Rental income 124 220 517 695
Other income 154 197 523 255
Depreciation and amortization (35) (28) (104) (100)
Management fee (105) (107) (318) (318)
------- ------- ------- -------
Total other income and (expense) 154 309 667 578
------- ------- ------- -------
Net income (loss) $(1,325) $(2,807) $(3,624) $(6,229)
======= ======= ======= =======
Net (Loss) allocated to General Partner $ -- $ (28) $ -- $ (62)
======= ======= ======= =======
Net (Loss) allocated to Class B
Limited Partner $(1,325) $ (14) $(3,624) $ (31)
======= ======= ======= =======
Net (Loss) allocated to Class A
Limited Partners $ -- $(2,765) $ -- $(6,136)
======= ======= ======= =======
Net (Loss) per Class A
Limited Partnership Unit $ -- $ (1.29) $ -- $ (2.86)
======= ======= ======= =======
</TABLE>
Page 4 of 26
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, 1999 AND September 30, 1998
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash Flow Used Operating Activities:
Net (loss) $ (3,624) $ (6,229)
Adjustments reconciling net (loss) to net cash in operating activities:
Depreciation 104 100
Net change in allowance for claims and liabilities 19 499
Net change in assets and liabilities:
Decrease (increase) in accounts and accrued interest receivable 5 (598)
(Increase) in housing inventories, net (8,168) (1,440)
Decrease in land held for sale 99 56
Decrease (increase) in land held for development -- 81
(Increase) in capitalized development costs (1,739) (907)
Increase (decrease) in accounts payable and accrued liabilities (473) 1,378
(Decrease) in management fee due affiliate (283) (106)
Net change in other assets and liabilities 474 1,594
-------- ---------
Net cash used in operating activities (13,586) (5,572)
-------- ---------
Cash Flow Used in Investing Activities:
Additions to building and other (317) (37)
Net sales and maturities of marketable securities 149 4
-------- ---------
Net cash used in investing activities (168) (33)
-------- ---------
Cash Flow from Financing Activities:
Advances on notes payable, net 13,779 6,384
Increases in restricted cash (942) (974)
Distribution paid to unitholders -- (1,631)
-------- ---------
Net cash provided by financing activities 12,837 3,779
-------- ---------
Decrease in cash (917) (1,826)
Cash at beginning of the period 1,115 1,890
-------- ---------
Cash at end of the period $ 198 $ 64
======== =========
</TABLE>
Page 5 of 26
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
These unaudited Consolidated Financial Statements of Heartland Partners, L.P., a
Delaware Limited Partnership, and its subsidiaries (collectively, "Heartland" or
the "Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the Company's 1998 Annual
Report on Form 10-K (the "1998 Form 10-K"). The following Notes to Consolidated
Financial Statements highlight significant changes to the Notes included in the
1998 Form 10-K and present interim disclosures as required by the SEC. The
accompanying Consolidated Financial Statements reflect in the opinion of
management all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature. Certain reclassifications have been made to the prior periods'
financial statements in order to conform with current period presentation.
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Heartland; CMC,
its 99.99% owned operating partnership; HDC, 100% owned by Heartland; CMCI, 1%
general partnership interest owned by HDC and 99% owned by CMC; CMC II, CMC III,
CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC, each 100% owned by CMC. All
intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues from housing and land sales are recognized in the period which title
passes and cash is received.
Segment Reporting
During the fourth quarter of 1998, Heartland adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("Statement No. 131"). Statement No. 131 superseded FASB
Statement of Financial Accounting Standards No. 14, Financial Reporting for
Segments of a Business Enterprise ("Statement No. 14"). Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect Heartland's results of operations or financial position.
Page 6 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
The Company has two primary reportable business segments, which consist of land
sales and property development (See Note 6 to the Consolidated Financial
Statements).
Property
Properties are carried at their historical cost. Expenditures which
significantly improve the values or extend useful lives of the properties are
capitalized. Predevelopment costs including interest, financing fees, and real
estate taxes that are directly identified with a specific development project
are capitalized. Repairs and maintenance are charged to expense as incurred.
Housing inventories (including completed model homes), consisting of land, land
development, direct and indirect construction costs and related interest, are
recorded at cost which is not in excess of fair value.
Housing inventories consisted of the following at September 30, 1999 (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Land under development $ 5,617
Direct construction costs 10,805
Capitalized project costs 5,724
-------
$22,146
=======
</TABLE>
2. Contingencies
At September 30, 1999, Heartland's allowance for claims and liabilities was
approximately $2.8 million of which $0.4 million was for the resolution of non-
environmental claims and $2.4 million was for environmental matters.
Significant legal proceedings and contingencies are discussed in the 1998 Form
10-K. During the second quarter of 1999, the Company modified its October 1,
1998 settlement agreement with the Port of Tacoma in which the Port of Tacoma
released all claims against the Company and the Company agreed either to (a) pay
$1.1 million on or before December 31, 2000, plus interest from January 1, 1999,
or (b) convey real property to be agreed upon at a later date. In July 1999,
suit was filed against the Company in Minnesota District Court by a buyer under
an expired real estate sale contract originally entered into in 1995, and
extended to June 30, 1999. The plaintiff in the suit is demanding specific
performance by conveyance to it of the vacant 5.95 acre parcel in Minneapolis,
Minnesota in consideration of $562,000.
3. Restricted Cash
The total restricted cash at September 30, 1999 and 1998 was $3,506,000 and
$1,698,000, respectively. Restricted cash increased $942,000 from December 31,
1998 to September 30, 1999. This increase was $642,000 for additional earnest
money deposited on sold units and an increase of $300,000 in the interest
reserve for the LaSalle National Bank line of credit.
Page 7 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
4. Notes Payable
Heartland has a line of credit agreement in the amount of $11.5 million with
LaSalle National Bank ("LNB"), pursuant to which CMC granted LNB a first lien on
certain parcels of land in Chicago, Illinois and Milwaukee, Wisconsin which had
a carrying value of $8,769,000 and $6,995,000 as of September 30, 1999, and 1998
respectively. Also, pursuant to the line of credit agreement, CMC has pledged
cash in the amount of $1,150,000 as an interest reserve. The maturity date of
the line of credit is April 29, 2000. Advances against the line of credit bear
interest at the prime rate of LNB plus 1.0% (9.25% at September 30, 1999). At
September 30, 1999, and 1998, $11,100,000 and $8,184,000 respectively, had been
advanced to the Company by LNB against the line of credit. In June 1999, the
Company extended the maturity of the loan to April 29, 2000, increased the
amount of the credit facility from $8,500,000 to $11,500,000, increased the
interest reserve from $850,000 to $1,150,000, reduced the net worth requirement
from $8,500,000 to $5,500,000 and granted LNB a first lien on a property in
Milwaukee, Wisconsin. The Company is currently in negotiations with LNB to
increase the line of credit to $13,300,000. While the Company has no reason to
believe the increase in the amount of the credit facility will not be approved
by LNB, there can be no assurance the contemplated transaction will take place.
As of September 30, 1999, CMCV has a revolving line of credit agreement in the
amount of $3 million with Bank of America (formerly NationsBank) ("BA") to
acquire lots and construct houses in the Osprey Cove subdivision, St. Marys,
Georgia, pursuant to which CMC granted a first mortgage to BA on specific lots
in said subdivision with a carrying value of $2,118,000 and $2,823,000 at
September 30, 1999, and 1998, respectively. The revolving line of credit
agreement matured June 30, 1999. On July 27, 1999, the Company extended the
maturity of the revolving line of credit agreement to December 30, 1999. The
line of credit bears interest at the prime rate of BA plus 1% (9.25% at
September 30, 1999). At maturity, all outstanding advances and any accrued
interest must be paid. In the event the loan is not renewed, it will be
extended for a period of six months to allow for completion of homes then under
construction, but no new construction will be commenced. BA had advanced
$1,519,000 and $1,950,000 at September 30, 1999, and 1998, respectively, against
the revolving line of credit facility.
In December 1998, the Company signed a commitment letter for $3,000,000 with BA
to construct homes in the Longleaf community. BA makes individual loans on each
home at the time construction begins. The third party developer subordinates
its lot to BA's construction loan. As of September 30, 1999, the Company had
outstanding balances on 19 term loans totaling $957,000. The carrying value of
the related inventory at September 30, 1999, totaled $1,185,000. The term of
each loan is one year and bears interest at the BA prime rate plus 1% (9.25% at
September 30, 1999).
On November 30, 1998, Heartland executed an agreement for a $2,500,000 loan from
Bank One relating to the Bloomfield project. The loan has a two year term and
bears interest at the prime rate (8.25% at September 30, 1999). $500,000 of the
loan was placed in an interest reserve. In addition, Bank One is providing a
$1,750,000 development loan, letters of credit for $204,500 to the City of
Rosemount and a $4,000,000 revolving credit line for the construction of homes;
these credit facilities were executed on February 1, 1999. The loans bear
interest at the prime rate
Page 8 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
(8.25% at September 30, 1999). The loans mature on January 31, 2001 and January
31, 2000, respectively. At September 30, 1999, $415,000 had been advanced
against the development loan and $1,027,000 against the revolving line of
credit. The three loans are collateralized by land and inventory with a carrying
value of $4,870,000 at September 30, 1999.
On January 6, 1999, the Kinzie Station 2.5 year loan agreement in the amount of
$29,812,000 was signed with Corus Bank N.A. The loan bears interest at the
prime rate plus one percent (9.25% at September 30, 1999). This loan is
collateralized by the real estate contained in the project. In conjunction with
the loan, a Construction Contract with the guaranteed maximum price of
$24,710,000 was entered into with a general contractor. At September 30, 1999,
$9,479,000 had been advanced against the loan.
5. Related Party Transactions
Heartland has a management agreement with Heartland Technology, Inc. ("HTI")
pursuant to which the Company is required to pay HTI an annual management fee in
the amount of $425,000. As of September 30, 1999, the management fee had been
paid in full to HTI.
Under a management services agreement, HTI reimburses the Company for reasonable
and necessary costs and expenses for services. At September 30, 1999, HTI owed
Heartland approximately $484,000. At December 31, 1998, the net amount due to
Heartland from HTI was approximately $159,000. This was an increase of $325,000
from December 31, 1998.
Page 9 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
6. Reportable Segments
The following tables set forth the reconciliation of net income and total assets
for Heartland's reportable segments for the quarters ended September 30, 1999
and 1998. (See Note 1 to the Consolidated Financial Statements.)
<TABLE>
<CAPTION>
Property
(amounts in thousands) Land Sales(1) Development(2) Corporate(3) Consolidated
- ---------------------- ----------------- ----------------- ----------------- -----------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1999 1998 1999 1998 1999 1998 1999 1998
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Property sales $ 447 $ 131 $ 2,533 $ 622 $ - $ - $ 2,980 $ 753
Less: Cost of property sales 32 25 2,664 770 - - 2,696 795
------- ------- ------- ------- ------- ------- ------- -------
Gross profit on property sales $ 415 $ 106 $ (131) $ (148) $ - $ - $ 284 $ (42)
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling expenses $ 185 $ 232 $ 728 $ 721 $ - $ - $ 913 $ 953
General and administrative expenses - - 221 548 513 449 734 997
Environmental expense 17 - 31 798 - - 48 798
Real estate taxes 20 226 48 100 - - 68 326
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses $ 222 $ 458 $ 1,028 $ 2,167 $ 513 $ 449 $ 1,763 $ 3,074
------- ------- ------- ------- ------- ------- ------- -------
Net operating income $ 193 $ (352) $(1,159) $(2,315) $ (513) $ (449) $(1,479) $(3,116)
Other Income and (Expense)
Portfolio income $ - $ - $ - $ - $ 16 $ 27 $ 16 $ 27
Rental income 124 220 - - $ - $ - 124 220
Other income - - 154 197 - - 154 197
Depreciation and amortization - - (22) (21) (13) (7) (35) (28)
Management fee - - - - (105) (107) (105) (107)
------- ------- ------- ------- ------- ------- ------- -------
Total other income and (expense) 124 220 132 176 (102) (87) 154 309
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 317 $ (132) $(1,027) $(2,139) $ (615) $ (536) $(1,325) $(2,807)
======= ======= ======= ======= ======= ======= ======= =======
Properties, net of accum. depreciation $ 831 $ 1,137 $36,433 $23,517 $ 809 $ 706 $38,073 $25,360
======= ======= ======= ======= ======= ======= ======= =======
Total assets $ 1,137 $ 1,717 $39,264 $24,860 $ 2,802 $ 2,278 $43,203 $28,855
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Page 10 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. The Land Sales reportable business segment consists of the approximately
15,167 acres of land located throughout 12 states for sale as of September
30, 1999. The related sales and marketing expenses are also reported in this
segment.
2. The Property Development reportable business segment consists of the
approximately 909 acres representing 15 sites that Heartland is in the
process of developing and communities in which Heartland is currently
acquiring finished lots, selling and building homes. The related selling and
operating expenses are also reported for this business segment.
3. The Corporate level revenues and expenses consist of rental income,
portfolio income from investments and salaries and general and
administrative expenses for the employees and occupied office space in
Chicago, Illinois.
Page 11 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Forward Looking Statements
We caution you that certain statements in the Management's Discussion and
Analysis of Financial Condition and Results of Operation section, and elsewhere
in this Form 10-Q are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
not guarantees of future performance. They involve risks, uncertainties and
other important factors, including the risks described in the Management's
Discussion and Analysis of Financial Condition and Results of Operation section,
and elsewhere in this Form 10-Q. The Company's actual future results,
performance or achievement of results and the value of your stock, may differ
materially from any such results, performance or achievement or value implied by
these statements. We caution you not to put undue reliance on any forward-
looking statement in these documents. The Company claims the protections of the
safe harbor for forward-looking statements contained in Section 21E of the
Securities Exchange Act of 1934.
Liquidity and Capital Resources
Cash flow from operating activities has been derived primarily from the proceeds
of property sales and rental income. Cash and marketable securities at amortized
cost were $3,704,000 (including $3,506,000 of restricted cash) at September 30,
1999, and $3,828,000 (including $2,564,000 of restricted cash) at December 31,
1998. The decrease of $124,000 from December 31, 1998 to September 30, 1999, is
mainly attributable to capital expenditures for land development and
construction costs (see Consolidated Statements of Cash Flows).
Cash flow used in operating activities was $13,586,000 in the first nine months
of 1999, compared to $5,572,000 used in operating activities in the first nine
months of 1998. The increase in cash used in operating activities between the
years of $8,014,000 is mainly attributable to capital expenditures of $6,728,000
for housing inventories in the first nine months of 1999.
At September 30, 1999, property designated for development consisted of 15 sites
comprising approximately 909 acres. The book value of this land is $10.2 million
or an average of $11,200 per acre. Heartland reviews these properties to
determine whether to hold, develop, joint venture or sell them. Heartland's
objective for these properties is to maximize unitholder value over a period of
years.
Heartland has a 3.88 acre site in the City of Chicago known as Kinzie Station.
Zoning approval for the construction of 381 dwelling units was received in 1997.
The construction on the first phase of the project started on October 1, 1998.
Phase I consists of 163 units in a Tower Building, 24 units in a Plaza Building
and 6 Townhomes. As of September 30, 1999, the Company had executed sale
contracts on 94 Tower units, 6 Plaza units and 3 Townhomes. The first closings
are expected to occur in the first quarter of the year 2000.
Page 12 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
In addition to the 3.88 acre site, the Company owns approximately 11 acres of
land and 4 acres of air rights adjacent to Kinzie Station. This acreage is
currently zoned for industrial and manufacturing uses.
On January 6, 1999, the Kinzie Station 2.5 year loan agreement in the amount of
$29,812,000 was signed with Corus Bank N.A. The loan bears interest at the prime
rate plus one percent (9.25% at September 30, 1999). This loan is collateralized
by the real estate contained in the project. In conjunction with the loan, a
Construction Contract with the guaranteed maximum price of $24,710,000 was
entered into with a general contractor. As of September 30, 1999, $9,479,000 has
been advanced against the loan.
Included in the 909 acres designated for development by Heartland are
approximately 11 acres consisting of 36 lots purchased for $1.3 million, or an
average of $36,100 per lot at Osprey Cove in St. Marys, GA. The 36 lots consist
of 1 completed model, 3 unsold homes under construction, 5 sold homes under
construction and 27 lots owned. Osprey Cove is a master-planned residential
community with a wide range of natural and recreation amenities which includes a
recreational complex, lakes, a boat dock and a boat launch.
At September 30, 1999, there were 7 homes under contract, all of which are under
construction at Osprey Cove. As of September 30, 1999, 32 contracts have closed:
17 in the first nine months of 1999, 13 in 1998 and 2 in 1997.
In addition to selling its own units, CMC also sells homes and lots for the
developer of Osprey Cove, and Osprey Cove homeowners. For the nine months ended
September 30, 1999, CMC sold 3 homes and 21 lots for these owners.
As of September 30, 1999, CMCV has a revolving line of credit agreement in the
amount of $3,000,000 from BA for Osprey Cove that matured on June 30, 1999. The
Company, on July 27, 1999, extended the maturity of the line of credit to
December 30, 1999. The line of credit with BA bears interest at the prime rate
of BA plus 1% (9.25% at September 30, 1999). At maturity, all outstanding
advances and any accrued interest must be paid. In the event the loan is not
renewed, it will be extended for a period of six months to allow for completion
of homes then under construction, but no new construction will be commenced. At
September 30, 1999, $1,519,000 has been advanced by BA under the revolving line
of credit.
The Company is the exclusive homebuilder and sales agent for the Longleaf
Country Club in Southern Pines, North Carolina. CMC currently intends to sell
and build 244 homes on lots currently owned by Longleaf Associates Limited
Partnership, an affiliate of General Investment & Development.
As of September 30, 1999, there were 13 homes under contract at Longleaf. There
are 21 homes under construction at September 30, 1999, of which 2 are models, 12
are under contract and 7 are unsold. The Company closed 8 contracts in the first
nine months of 1999.
Page 13 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
When the Company assumed day to day operations of Longleaf in April 1998, there
were a number of units under construction which were owned by the developer, as
well as resale units, on the market. As of September 30, 1999, the Company had
sold a total of 28 homes and 2 lots for these owners.
In December 1998 the Company signed a commitment letter for $3,000,000 with BA
to construct homes in the Longleaf community. BA makes individual loans on each
home as it is started. The developer subordinates its lot to BA's construction
loan. The term of each loan is one year and bears interest at the BA prime rate
plus 1% (9.25% at September 30, 1999). At September 30, 1999, $957,000 had been
advanced by BA to the Company under these loans.
Heartland is seeking additional opportunities for homebuilding, particularly in
vacation/retirement communities.
Heartland has received approval from the City of Rosemount on the 226 acre site
it owns in Rosemount, Minnesota. The development known as Bloomfield was
approved for 226 attached units and 241 detached single family homes, on 192
acres, with the remaining 34 acres reserved for future residential development.
This project will be developed in phases.
In Rosemount, unlike most areas in the country, the City is responsible for
constructing the infrastructure improvements. The City receives reimbursement
for its costs by real estate tax assessments. The City of Rosemount has
completed the Phase I infrastructure. Phase I consists of 120 townhomes, 27
single family homes and 10 twinhomes. At September 30, 1999, the 2 townhome
models are complete. Also, 2 sold and 6 unsold townhomes are currently under
construction as well as 1 townhome foundation (this represents 6 units). The
single family model home is complete. Also, 3 sold and 3 unsold single family
homes are under construction. The Grand Opening of the models took place in May
1999. The Company closed 2 contracts in the third quarter of 1999. Phase II of
Bloomfield has site plan approval from the City of Rosemount for the
construction of 20 twinhomes and 97 single family homes.
On November 30, 1998, Heartland executed an agreement for a $2,500,000 land loan
with Bank One relating to the Bloomfield project. The loan bears interest at the
prime rate (8.25% at September 30, 1999), and $500,000 of the loan was placed in
an interest reserve (certificate of deposit). Also, Bank One is providing a
$1,750,000 land development loan, letters of credit for $204,500 to the City of
Rosemount and a $4,000,000 revolving credit line for the construction of homes
pursuant to final documents which were signed on February 1, 1999. The loans
bear interest at the prime rate (8.25% at September 30, 1999). At September 30,
1999, $415,000 had been advanced against the land development loan and
$1,027,000 against the revolving line of credit. The Company believes that no
additional financing will be needed for Phase I of the Rosemount community.
Heartland, along with Colliers, Bennett and Kahnweiler, a Chicago based real
estate company, and Wooton Construction, have formed a joint venture to develop
approximately 265,000 square feet of industrial space in the Goose Island
Industrial Park in Chicago, Illinois. As of September 30, 1999, the buildings
had been built and leases had been signed for 265,000 square feet.
Page 14 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
On December 1, 1998 the Fife property was annexed to the City of Fife in the
state of Washington. A Local Improvement District (LID) has been approved in
order to support the improvement and extension of sewers and sewer capacity for
the site. Fife has zoned the property for residential usage. Heartland has
prepared the preliminary site plan for the site. The Company has submitted the
site plan for approval and expects it to be approved during the second quarter
of the year 2000.
The Company owns Kilbourn Station, a three story, 60,000 square foot office
building and railroad depot in Milwaukee, Wisconsin. Amtrak provides interstate
passenger rail service using the station. The Company has worked with the State
of Wisconsin, the Wisconsin Congressional Delegation and the Milwaukee County
Transit Company (which provides local bus service) on plans to improve Kilbourn
Station. The plans enhance the linkage of the building to Milwaukee's new
"Midwest Express" convention center and to planned local bus routes as well as
updating the design of its interior space. The State has authorized the
expenditure of approximately $2 million in state funds and the federal
government has authorized approximately $2 million of federal funds for the
improvement of the facility. The Company has made applications with the state
and federal governments to have approximately $4 million in funds appropriated
for this facility. The appropriation of the funds should be completed in the
fourth quarter of 1999. The Company has started preliminary design work on this
project in the third quarter of 1999.
The real estate development business is highly competitive. Heartland is subject
to competition from a great number of real estate developers, including
developers with national operations, many of which have greater sales and
financial resources than Heartland.
Property Sales and Leasing Activities
Heartland's current inventory of land held for sale consists of 15,167 acres
located throughout 12 states. The book value of this inventory is approximately
$831,000. The majority of the land is former railroad rights-of-way, long,
narrow strips of land that vary between 50-200 feet wide. Some of Heartland's
sites located in small rural communities or outlying mid-cities are leased to
third parties for agricultural, industrial, retail and residential use. These
properties may be improved with the lessee's structures and include grain
elevators, storage sheds, parking lots and small retail service facilities.
The sale, management and leasing of the Company's non-development real estate
inventory is conducted by Heartland's Sales and Property Management Department.
The volume of the Company's sales has slowed over the last five years due mainly
to the less desirable characteristics of the remaining properties. The Company
anticipates that the sale of its remaining parcels may take beyond the year
2001.
The Company has a current active lease portfolio of approximately 188 leases.
Less than 1% of its total acreage is leased. The number of leases declines each
year as sales of properties are made to existing lessees. The majority of the
leases provide nominal rental income to Heartland. The leases generally require
the lessee to construct, maintain and remove any improvements, pay property
taxes, maintain insurance and maintain the condition of the property. The
majority of
Page 15 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
the leases are cancelable by either party upon thirty to sixty days notice.
Heartland's ability to terminate or modify certain of its leases is restricted
by applicable law and regulations.
The Company performs annual reviews on major properties to determine that the
capitalized cost of development properties does not exceed the current fair
value without regard to the property's expected net realizable value from
development. If the capitalized cost of any property exceeds the current fair
value, then a loss is recognized and the capitalized cost is reduced in
accordance with FAS 121. No loss is included in the statement of operations for
the quarters and nine months ended September 30, 1999, and 1998.
It is the Company's practice to evaluate environmental liabilities associated
with the Company's properties. Heartland monitors the potential exposure to
environmental costs on a regular basis and has recorded a liability in the
amount of $2.4 million at September 30, 1999 for possible environmental
liabilities, including remediation, legal and consulting fees. 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 $0.4 million.
At this time Heartland does not anticipate that these claims or assessments will
have a material effect on the Company's liquidity, financial position or 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
the Company will continue to be able to assert the bankruptcy bar arising from
the reorganization of its predecessor and that resolution of 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, but anticipates the necessity of utilizing outside financing
to fund development projects and operations. The Company has a line of credit
with LNB in the amount of $11.5 million. Cash in the amount of $1,150,000 is
pledged as an interest reserve. The line of credit matures April 29, 2000.
Advances against the line of credit bear interest at the prime rate of LNB plus
1.0% (9.25% at September 30, 1999). At September 30, 1999, $11,100,000 had been
advanced to the Company by LNB against the line of credit. On June 30, 1999, the
Company extended, pledged additional collateral under, modified the financial
terms and increased the amount of the credit facility. The Company is currently
in negotiations with LNB to increase the line of credit to $13,300,000. While
the Company has no reason to believe the increase in the amount of the
Page 16 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
credit facility will not be approved by LNB, there can be no assurance the
contemplated transaction will take place.
Results of Operations
For the third quarter and nine months ended September 30, 1999, operations
resulted in a net loss of $1,325,000 and $3,624,000, respectively or $0 per
Class A Unit. Operations for the third quarter and nine months ended September
30, 1998, resulted in a net loss of $2,807,000 and $6,229,000 respectively, or
$1.29 and $2.86 per Class A Unit.
The decrease in the net loss for the third quarter of 1999 compared to 1998 of
$1,482,000 is due to a decrease in general and administrative expenses of
$1,030,000, and an increase of $326,000 due to improved gross profit on property
sales. The decrease in the net loss for the nine months ended September 30, 1999
compared to 1998 of $2,605,000 is due to a decrease in general and
administrative expenses of $1,474,000, a decrease in property tax expense of
$185,000, an increase of $795,000 due to improved gross profit on property sales
and the receipt of a reimbursement in the first quarter of 1999 of $190,000 for
prior year environmental expense.
Heartland has approximately 188 active leases on its real estate properties,
which generated $124,000 and $220,000 of revenue for the third quarter of 1999
and 1998, respectively. Rental income during the three months ended September
30, 1999 compared to the three months ended September 30, 1998 decreased
$96,000. This was due to the property sales in the fourth quarter of 1998 that
reduced the rent recognized during 1999 by approximately $33,000 per quarter.
Also, the one time recognition of unbilled lease income from prior periods of
approximately $57,000 took place during the third quarter of 1998.
Total operating expenses were $1,763,000 and $3,074,000 for the quarters ended
September 30, 1999 and 1998, respectively. The decrease in operating expenses of
$1,311,000 is due to a decrease in general and administrative expenses of
$1,030,000 and a decrease in property tax expense of $258,000. Total operating
expenses were $5,173,000 and $6,894,000 for the nine months ended September 30,
1999 and 1998, respectively. The decrease of $1,721,000 is due to a decrease in
general and administrative expenses of $1,474,000 and a decrease in property tax
expense of $185,000.
Economic and Other Conditions Generally
The real estate industry is highly cyclical and is affected by changes in
national, global and local economic conditions and events, such as employment
levels, availability of financing, interest rates, consumer confidence and the
demand for housing and other types of construction. Real estate developers such
as the Company are subject to various risks, many of which are outside the
control of the developer, including real estate market conditions, changing
demographic conditions, adverse weather conditions and natural disasters, such
as hurricanes, tornados, delays in construction schedules, cost overruns,
changes in government regulations or requirements, increases in real estate
taxes and other local government fees and availability and cost of land,
materials and labor. The occurrence of any of the foregoing could have a
material adverse effect on the financial condition of Heartland.
Page 17 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
Access to Financing
The real estate business is capital intensive and requires expenditures for land
and infrastructure development, housing construction and working capital.
Accordingly, Heartland anticipates incurring additional indebtedness to fund
their real estate development activities. As of September 30, 1999, Heartland's
total consolidated indebtedness was approximately $27,271,000. There can be no
assurance that the amounts available from internally generated funds, cash on
hand, Heartland's existing credit facilities and sale of non-strategic assets
will be sufficient to fund Heartland's anticipated operations. Heartland may be
required to seek additional capital in the form of equity or debt financing from
a variety of potential sources, including additional bank financing and sales of
debt or equity securities. No assurance can be given that such financing will be
available or, if available, will be on terms favorable to Heartland. If
Heartland is not successful in obtaining sufficient capital to fund the
implementation of its business strategy and other expenditures, development
projects may be delayed or abandoned. Any such delay or abandonment could result
in a reduction in sales and would adversely affect Heartland's future results of
operations.
Period-to-Period Fluctuations.
Heartland's real estate projects are long-term in nature. Sales activity varies
from period to period, and the ultimate success of any development cannot always
be determined from results in any particular period or periods. Thus, the timing
and amount of revenues arising from capital expenditures are subject to
considerable uncertainty. The inability of Heartland to manage effectively their
cash flows from operations would have an adverse effect on their ability to
service debt, and to meet working capital requirements.
Interest Rate Sensitivity
The Company's total consolidated indebtedness at September 30, 1999, is
$27,271,000. The Company pays interest on its outstanding borrowings under
revolving credit facilities and fixed loan amounts at the prime rate plus 0.00%
to 1.00%. An adverse change of 1.00% in the prime rate would increase the
quarterly interest incurred by approximately $68,000.
The Company does not have any other financial instruments for which there is a
significant exposure to interest rate changes.
Page 18 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than 2000. This
could result in a system failure or miscalculations causing disruptions of
operation, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on recent assessments, we have determined that we will be required to
modify or replace significant portions of our software and certain hardware so
that those systems will properly recognize dates beyond December 31, 1999. We
believe that with modifications or replacements of existing software and certain
hardware, the Year 2000 issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed timely, the Year 2000 issue
could materially affect our operations.
Our plan to resolve the Year 2000 issue involves the following four phases:
assessment, remediation, testing and implementation. To date, we have fully
completed our assessment of all systems that could be significantly affected by
the Year 2000. The completed assessment indicated that most of the Company's
significant information technology systems could be affected, particularly the
general ledger, billing and inventory systems. Based on a review of our product
line, we have determined that most of the products we have sold and will
continue to sell do not require remediation to be Year 2000 compliant.
Accordingly, we do not believe that the Year 2000 presents a material exposure
as it relates to our products. In addition, we have gathered information about
the Year 2000 compliance status of our significant suppliers and subcontractors
and continue to monitor their compliance.
For its information technology exposures, to date the Company is substantially
complete on the remediation phase, as well as software reprogramming and
replacement. Once software was reprogrammed or replaced on a system, we began
testing and implementation. These phases ran concurrently for different systems.
We have also begun testing and implementation of our remediated systems. The
testing phase for all significant systems is completed, with all remediated
systems fully tested and expected to be implemented with 100% completion
targeted for November 30, 1999.
The remediation of operating equipment is significantly more difficult than the
remediation of the information technology systems because some of the
manufacturers of the equipment have not yet provided the necessary remediation
programming. Therefore, we are only 90% complete in the remediation phase of our
operating equipment. Testing of this equipment is more difficult than the
testing of the information technology systems; as a result, the Company has been
testing its remediated operating equipment. Once testing is satisfactorily
completed, the operating equipment will be ready for immediate use. The Company
expects to complete its remediation efforts by November 30, 1999. Testing and
implementation of affected equipment is expected to be completed by November 30,
1999.
Page 19 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
We have queried our significant suppliers and subcontractors that do not share
information systems with the Company (external agents). To date, we are not
aware of any external agent with a Year 2000 issue that would materially impact
our results of operations, liquidity, or capital resources. However, we have no
means of ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially affect our business or financial results. The effect of
non-compliance by external agents is not determinable.
We will utilize both internal and external resources to reprogram, or replace,
test and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project is estimated at $200,000
and is being funded through operating cash flows. To date, the Company has
incurred approximately $190,000 ($30,000 expensed and $160,000 capitalized for
new systems and equipment), related to all phases of the Year 2000 project. Of
the total remaining project costs, none of the remaining $10,000 relates to
repair of hardware and software and will be expensed as incurred.
We believe that we have an effective program in place to resolve the Year 2000
issue in a timely manner. As noted above, we have not yet completed all
necessary phases of the Year 2000 program. If we do not complete any additional
phases, the Company would be unable to take customer orders, manufacture
products, finance construction or collect payments. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also materially
affect the Company. The Company could be subject to litigation for computer
system product failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost reserve cannot
be reasonably estimated at this time.
We have formulated our contingency plans if we do not complete all phases of the
Year 2000 program. If we are unable to successfully implement the four phases of
our Year 2000 plan and our contingency plan fails, or if Year 2000 issues
negatively affect our suppliers, our customers or the economy generally, our
business or financial results may be materially affected.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of
Operation, Economic and Other Conditions Generally, Access to Financing and
Interest Rate Sensitivity.
Page 20 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
PART II
OTHER INFORMATION
Item 1. Legal Proceedings and Contingencies
At September 30, 1999, Heartland's allowance for claims and liabilities was
approximately $2.8 million. 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 acquired from the Company 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.
On October 1, 1998, the Company entered into a Settlement Agreement with the
Port, subsequently modified effective June 1999, in which the Port released all
claims and the Company agreed either to (a) pay the Port $1.1 million on or
before December 31, 2000, plus interest from January 1, 1999, or (b) to convey
to the Port real property to be agreed upon at a later date. At September 30,
1999, Heartland's allowance for claims and liabilities for this matter was $1.1
million.
The Company will not make a claim on its insurance carriers in this matter
because the settlement amount does not exceed the self insured retention under
the applicable insurance policies.
Page 21 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
Wheeler Pit, Janesville, Wisconsin
- ----------------------------------
In November 1995 the Company settled a claim with respect to the Wheeler Pit
site near Janesville, Wisconsin. The Company's only outstanding obligation under
the settlement is to pay 32% of the monitoring costs for twenty-five years
beginning in 1997.
Miscellaneous Environmental Matters
- -----------------------------------
Under environmental laws, liability for releases of hazardous substances is
imposed on the current owners and operators of the contaminated site, as well as
the owner or the operator of the site at the time the hazardous substances were
disposed or otherwise released. In most cases, this liability is imposed without
regard to fault. Currently, 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 liable for some or all of the investigation and remediation of
certain properties in Montana sold by its predecessor's reorganization trustee
prior to the consummation of its predecessor's reorganization. The Company has
denied liability at certain of these sites based on the reorganization bar of
the Company's predecessor. 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 twelve 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, Farmington, 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. No
potentially responsible parties ("PRPs") have been formally named at this site.
The Company sold its interest in this property to the City of St. Paul on April
30, 1999, with the City agreeing to indemnify the Company against certain
environmental liabilitities.
Page 22 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
The Company has an interest in property at Moses Lake, Washington previously
owned and operated by the United States government as an Air Force base. A
portion of the Company's property is located over a well field that was placed
on the national priority list in October 1992. 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. The Company has not been named as a PRP.
In July 1999, suit was filed against the Company in Minnesota District Court by
a buyer under an expired real estate sale contract originally entered into in
1995, and extended to June 30, 1999. The plaintiff in the suit is demanding
specific performance by conveyance to it of the vacant 5.95 acre parcel in
Minneapolis, Minnesota originally to be sold to the buyer for $562,000 pursuant
to the real estate contract. Environmental sampling in 1995 disclosed that the
parcel was impacted by releases of regulated materials from the 1960s operations
of a former lessee. The Company continues to investigate the environmental
condition of the property on a voluntary basis under the direction of the
Minnesota Department of Agriculture.
In addition to the environmental matters set forth above, there may be other
properties, i), with environmental liabilities not yet known to the Company,
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 5. Other Information
Heartland has a 3.88 acre site in the City of Chicago known as Kinzie
Station. The Company owns approximately eleven acres of land and four acres of
air rights adjacent to Kinzie Station. This acreage is currently zoned for
industrial and manufacturing uses. However, in late October 1999 Heartland
entered into a contract with Home Depot to sell approximately three of the
eleven acres. The Company retained certain air rights. The contract is subject
to significant conditions including zoning and other governmental approvals. It
is expected that this sale will not close prior to June 30, 2000.
Page 23 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
- ----------- -------------------------------------------------------------------
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, 1999.
Page 24 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
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 15, 1999 BY: /s/ Edwin Jacobson
----------------------------------------
Edwin Jacobson
President and Chief Executive Officer of
Heartland Technology, Inc.
the General Partner
Date: November 15, 1999 BY: /s/ Richard P. Brandstatter
----------------------------------------
Richard P. Brandstatter
Vice President- Finance, Secretary
And Treasurer of
Heartland Technology, Inc.
the General Partner
Page 25 of 26
<PAGE>
HEARTLAND PARTNERS, L.P.
September 30, 1999
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- --------------------------------------------------------------
27 Financial Data Schedule (filed herewith)
Page 26 of 26
<TABLE> <S> <C>
<PAGE>
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<LEGEND> This schedule contains summary financial information extracted from
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financial statements.
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 198 1,115
<SECURITIES> 0 149
<RECEIVABLES> 722 769
<ALLOWANCES> 416 416
<INVENTORY> 22,146 13,978
<CURRENT-ASSETS> 1,265 2,337
<PP&E> 39,108 28,983
<DEPRECIATION> 1,035 931
<TOTAL-ASSETS> 43,203 33,231
<CURRENT-LIABILITIES> 32,864 19,198
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 5,785 9,409
<TOTAL-LIABILITY-AND-EQUITY> 43,203 33,231
<SALES> 7,542 3,005
<TOTAL-REVENUES> 8,631 4,001
<CGS> 6,660 2,918
<TOTAL-COSTS> 5,595 7,312
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,624) (6,229)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,624) (6,229)
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