SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1996 Commission file number 0-19245
ARVIDA/JMB PARTNERS, L.P.-II
(Exact name of registrant as specified in its charter)
Delaware 58-1809884
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Avenue., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/440-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such a shorter period that
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 18
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -----------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 483,393 1,387,313
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,211,527 2,552,834
Trade and other accounts receivable (net of allowance
for doubtful accounts of $51,166 at June 30, 1996
and $18,431 at December 31, 1995) . . . . . . . . . . . . . . . . . . . 382,904 1,218,015
Real estate inventories . . . . . . . . . . . . . . . . . . . . . . . . . 50,354 10,766,333
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 2,623,668 6,404,217
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 1,185,940 1,910,446
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,937,786 24,239,158
============ ============
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
Liabilities:
Bank overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- 550,666
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,222 450,129
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,191 1,121,423
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 48,196,284 39,137,504
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . 7,788,844 7,591,889
Notes and mortgages payable (in default) . . . . . . . . . . . . . . . . 79,106,916 100,175,208
------------ ------------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 135,655,457 149,026,819
------------ ------------
Partners' capital accounts (deficits):
General Partner and Associate Limited Partner:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . . . . (8,185,715) (5,809,930)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . (246,771) (246,771)
------------ ------------
(8,430,486) (6,054,701)
------------ ------------
Limited partners:
Capital contributions, net of offering costs . . . . . . . . . . . . . 209,753,671 209,753,671
Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . . . . (321,819,682) (319,265,457)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . (9,221,174) (9,221,174)
------------ ------------
(121,287,185) (118,732,960)
------------ ------------
Total partners' deficits . . . . . . . . . . . . . . . . . . . . . (129,717,671) (124,787,661)
------------ ------------
Total liabilities and partners' deficits . . . . . . . . . . . . . $ 5,937,786 24,239,158
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Housing . . . . . . . . . . . . . . . . . . . . . $ -- 2,447,276 140,810 5,084,252
Homesites . . . . . . . . . . . . . . . . . . . . 598,019 2,323,900 1,244,069 4,759,100
Land and property . . . . . . . . . . . . . . . . 20,060,819 -- 20,060,819 --
Operating properties. . . . . . . . . . . . . . . 1,194,787 1,418,538 2,881,131 2,807,847
Brokerage and other operations. . . . . . . . . . 225,457 715,647 561,628 1,369,086
----------- ---------- ----------- -----------
Total revenues. . . . . . . . . . . . . . 22,079,082 6,905,361 24,888,457 14,020,285
Cost of revenues:
Housing . . . . . . . . . . . . . . . . . . . . . 186,094 2,102,816 333,373 4,389,716
Homesites . . . . . . . . . . . . . . . . . . . . 505,439 1,840,921 1,063,976 3,712,900
Land and property . . . . . . . . . . . . . . . . 14,050,234 -- 14,050,234 --
Operating properties. . . . . . . . . . . . . . . 1,360,309 1,348,377 2,738,531 2,705,594
Brokerage and other operations. . . . . . . . . . 241,530 744,898 534,794 1,336,599
----------- ---------- ----------- -----------
Total cost of revenues. . . . . . . . . . 16,343,606 6,037,012 18,720,908 12,144,809
Gross operating profit. . . . . . . . . . . . . . . 5,735,476 868,349 6,167,549 1,875,476
Selling, general and administrative expenses. . . . (857,187) (1,049,011) (1,339,962) (2,587,754)
----------- ---------- ----------- -----------
Net operating income (loss) . . . . . . . 4,878,289 (180,662) 4,827,587 (712,278)
Interest income . . . . . . . . . . . . . . . . . . 6,309 56,828 15,433 139,439
Interest and real estate taxes, net . . . . . . . . (4,700,270) (5,329,131) (9,773,030) (10,771,031)
----------- ---------- ----------- -----------
Net income (loss) . . . . . . . . . . . . $ 184,328 (5,452,965) (4,930,010) (11,343,870)
=========== ========== =========== ===========
Net income (loss) per
Limited Partnership
Interest. . . . . . . . . . . . . . . . $ 4.71 (12.37) (10.90) (28.81)
=========== ========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,930,010) (11,343,870)
Charges to net loss not requiring cash:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 233,799 281,429
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . 32,735 (3,239)
Loss (gain) on disposition of property and equipment. . . . . . . . . . . . . 1,765,143 (2,602)
Changes in:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,341,307 (2,870,226)
Trade and other accounts receivable . . . . . . . . . . . . . . . . . . . . . 802,376 203,636
Real estate inventories:
Additions to real estate inventories. . . . . . . . . . . . . . . . . . . . (4,731,604) (889,492)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,447,583 8,102,616
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (279,440)
Capitalized real estate taxes . . . . . . . . . . . . . . . . . . . . . . . -- (105,455)
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . 670,202 2,793,595
Accounts payable, accrued expenses and other liabilities. . . . . . . . . . . 8,885,873 5,599,516
Deposits and unearned income. . . . . . . . . . . . . . . . . . . . . . . . . (835,232) (337,452)
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 196,955 226,457
------------ -----------
Net cash provided by operating activities . . . . . . . . . . . . . . 18,879,127 1,375,473
------------ -----------
Investing activities:
Proceeds from disposal of property and equipment. . . . . . . . . . . . . . . 1,835,911 2,602
Acquisitions of property and equipment. . . . . . . . . . . . . . . . . . . . -- (176,123)
------------ -----------
Net cash provided by (used in) investing activities . . . . . . . . . 1,835,911 (173,521)
------------ -----------
Financing activities:
Payments of notes and mortgages payable . . . . . . . . . . . . . . . . . . . (21,068,292) (8,474,348)
Repayments of bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . (550,666) (788,396)
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . . . (21,618,958) (9,262,744)
------------ -----------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (903,920) (8,060,792)
Cash and cash equivalents,
beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387,313 9,526,271
------------ -----------
Cash and cash equivalents,
end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 483,393 1,465,479
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other
interest, net of amounts capitalized. . . . . . . . . . . . . . . . . . . . $ -- --
============ ===========
Non-cash investing and financing activities . . . . . . . . . . . . . . . . . $ -- --
============ ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1995,
which are included in the Partnership's 1995 Annual Report, as certain
footnote disclosures which would substantially duplicate those contained in
such audited financial statements have been omitted from this report.
Capitalized terms used but not defined in this quarterly report have the
same meanings as in the Partnership's 1995 Annual Report.
GENERAL
Capitalized Interest and Real Estate Taxes
Interest, including the amortization of loan fees, of $5,657,189 and
$6,971,239 was incurred for the six months ended June 30, 1996 and 1995,
respectively, of which $0 and $279,440 was capitalized, respectively.
There were no interest payments made during the three and six month periods
ended June 30, 1996 and 1995. Interest, including the amortization of loan
fees, of $2,742,832 and $3,447,455 was incurred for the three months ended
June 30, 1996 and 1995, respectively, of which $0 and $154,762 was
capitalized, respectively. The Partnership has not made the required
monthly interest payments on its credit facility since September 1994.
Real estate taxes of $4,115,841 and $4,184,687 were incurred for the
six months ended June 30, 1996 and 1995, respectively, of which $0 and
$105,455 was capitalized, respectively. Real estate tax payments of
$517,359 and $370,238 were made for the six months ended June 30, 1996 and
1995, respectively. Real estate taxes of $1,957,438 and $2,086,146 were
incurred for the three months ended June 30, 1996 and 1995, respectively,
of which $0 and $49,708 was capitalized, respectively. Real estate tax
payments of $67,616 and $9,596 were made during the three months ended June
30, 1996 and 1995, respectively. The preceding analysis of real estate
taxes does not include real estate taxes incurred or paid with respect to
the Partnership's club facilities and other operating properties as these
taxes are included in cost of revenues for operating properties.
Property and Equipment and Other Assets
Depreciation expense of $179,495 and $216,876 was incurred for the six
month periods ended June 30, 1996 and 1995, respectively. Amortization of
other assets of $54,304 and $64,553 was incurred for the six months ended
June 30, 1996 and 1995, respectively. Depreciation expense of $79,957 and
$107,526 was incurred for the three months ended June 30, 1996 and 1995,
respectively. Amortization of other assets of $23,447 and $32,277 was
incurred for the three months ended June 30, 1996 and 1995, respectively.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
There are no treasury bills or other short-term investments with
original maturity dates of three months or less included in cash and cash
equivalents at June 30, 1996 and December 31, 1995. Included in restricted
cash are amounts restricted under various escrow agreements and
approximately $1,190,400 remaining from the original $3 million which was
deposited into a restricted collateral account in March 1995 pursuant to an
agreement between the Partnership and its lender.
NOTES AND MORTGAGES PAYABLE (IN DEFAULT)
The Partnership's credit facilities consist of a $52.5 million term
loan, a $67.5 million term loan, a revolving line of credit of
approximately $14.3 million and approximately $4.3 million of outstanding
letters of credit securing performance obligations of the Partnership.
There is also a $5 million letter of credit facility which secures
performance obligations of the Partnership. At June 30, 1996,
approximately $11.2 million, $56.4 million and $11.5 million was
outstanding under the $52.5 million term loan, the $67.5 million term loan
and the revolving line of credit facility, respectively.
For the six month period ended June 30, 1996, the effective interest
rate for the combined term loans and the revolving line of credit facility
was approximately 12.6% per annum. The Partnership has not made the
required interest payments on its credit facilities since September 1994.
The amount of interest which remains payable at June 30, 1996 totals
approximately $32.1 million. The accrued interest on the Partnership's
credit facilities is the primary cause for the increase in Accrued expenses
and other liabilities at June 30, 1996 as compared to December 31, 1995.
Proceeds from the sales of housing units, homesites, land parcels and
other collateral securing the credit facilities, net of brokerage
commissions and certain other customary selling expenses are to be
delivered to the lender to be applied against the outstanding principal
balances on both of the term loans. Through June 30, 1996, the Partnership
has remitted proceeds totalling approximately $39.9 million from sales made
after becoming subject to this requirement in September 1994.
On October 31, 1995, the Partnership and its lender reached an
agreement to amend the March 1995 Forbearance Agreements agreeing to, among
other things, a new plan whereby the Partnership would attempt to sell its
remaining assets (other than the Talega Property) in accordance with set
minimum sales prices for each of the assets over the course of a six-month
period with payment of certain operational, development and marketing costs
to be made out of available funds in a restricted collateral account. The
agreement was subject to the lender's continued forbearance from the
exercise of its remedies under the credit facilities and its right to cease
funding costs not yet then incurred. The Partnership and its lender are
currently in the process of negotiating a revised plan whereby the
Partnership would sell its remaining assets by December 31, 1996. As of
the date of this report, the lender has not initiated any actions as a
result of the Partnership's failure to sell all of its remaining assets as
specified per the terms of the originally agreed upon plan.
During June 1996, the Heathrow joint venture, in which the Partnership
is the managing general partner, closed on the sale of the remaining land,
the country club and certain related assets within the Partnership's
Heathrow Community. This transaction is reflected in Land and property
operations on the accompanying Consolidated Statements of Operations. This
sale is the primary cause for various significant changes on the
accompanying Consolidated Balance Sheets at June 30, 1996 as compared to
December 31, 1995 and on the accompanying Consolidated Statement of
Operations for the three and six months ended June 30, 1996 as compared to
the same periods in 1995. The net proceeds from this sale, after
prorations and closing costs, of approximately $18.4 million were paid to
the Partnership's lender and applied against the outstanding principal
balance on both of the Partnership's term loans. The sale resulted in a
gain for financial reporting purposes and a loss for Federal income tax
purposes.
During March 1996, the Partnership reached an agreement with an
unaffiliated third party for the sale of the Talega Property. This
contract subsequently expired by its terms without the sale of the Property
being consummated. The Partnership continues to actively market the
Property and is in various stages of negotiations with potential
purchasers.
During April 1996, the Partnership entered into a non-binding letter
of intent with an unaffiliated third party for the sale of the retail
shopping plaza at its Heathrow Community. This letter of intent expired by
its terms without the sale of the shopping plaza being consummated. The
Partnership continues to actively market this Property for sale.
Although there can be no assurance, the Partnership currently expects
that it will be disposing of all of its remaining assets by December 31,
1996 in accordance with the plan which is currently being negotiated with
its lender. The Partnership's ability to dispose of all of its assets
during 1996 is dependent upon, among other things, the Partnership entering
into a contract for the sale of its Talega Property on terms acceptable to
its lender, and closing such sale by the end of the year. It is expected
that any proceeds from the sale or other disposition of such assets, in
excess of the costs of sale and general and administrative expenses
attributable thereto, will be paid to the lender or other creditors of the
Partnership. Upon completion of the sale of the Partnership's remaining
assets, the Partnership expects to terminate. The Limited Partners should
not expect to receive any future distributions from the Partnership.
The possibility still remains that the lender may pursue its remedies
under the credit facilities, including realizing upon substantially all of
the Partnership's remaining assets, which are collateral security for the
credit facilities. These issues raise substantial doubt about the
Partnership's ability to continue as a going concern. If the Partnership
is unable to continue as a going concern, it may be forced to dispose of
its Properties in a manner that would realize less than would be realized
under its current plan for an orderly disposition. If this were to occur,
any proceeds received could be less than the current carrying values of the
Properties, resulting in the recognition of additional losses by the
Partnership. The accompanying Consolidated Financial Statements do not
include any adjustments that might result from the outcome of this
uncertainty.
TRANSACTIONS WITH AFFILIATES
The General Partner of the Partnership or its affiliates may be
reimbursed for their direct expenses or out-of-pocket expenses relating to
the administration of the Partnership and its assets. For the six months
ended June 30, 1996, the General Partner of the Partnership or its
affiliates were due reimbursements for such direct or out-of-pocket
expenditures in the amount of approximately $3,400, all of which was paid
as of June 30, 1996. The total of such reimbursements for the six months
ended June 30, 1995 was approximately $34,800.
In addition, the General Partner and its affiliates are entitled to
reimbursements for salaries and salary-related costs relating to the
administration of the Partnership and the operation of the Partnership's
Properties. Such costs were approximately $17,300 for the six months ended
June 30, 1996, all of which was paid as of June 30, 1996.
The Partnership also receives reimbursements from, or reimburses,
affiliates of the General Partner for certain general and administrative
costs including, and without limitation, salary and salary-related costs
relating to work performed by employees of the Partnership and certain out-
of-pocket expenditures incurred on behalf of such affiliates. The
Partnership was entitled to receive approximately $11,700 and $3,700 for
such costs for the six months ended June 30, 1996 and 1995, respectively.
In addition, the Partnership was obligated to reimburse one of its
affiliates approximately $0 and $23,500 for the six months ended June 30,
1996 and 1995, respectively, for costs incurred by the affiliate on behalf
of the Partnership, none of which was outstanding at June 30, 1996.
The Partnership and Arvida/JMB Partners, L.P. (a publicly-held limited
partnership affiliated with the General Partner, "Arvida/JMB-I") each
employ project related and administrative personnel who perform services on
behalf of both partnerships. In addition, certain out-of-pocket
expenditures related to such services and other general and administrative
expenditures are incurred and charged to each partnership as appropriate.
The Partnership reimburses or receives reimbursements from Arvida/JMB-I for
such costs (including salary and salary-related costs). For the six month
period ended June 30, 1996, the Partnership was obligated to reimburse
Arvida/JMB-I approximately $1,178,900. At June 30, 1996, approximately
$205,500 was unpaid, all of which was paid as of August 2, 1996. In addi-
tion, for the six month period ended June 30, 1996, the Partnership was
entitled to receive approximately $113,700 from Arvida/JMB-I. At June 30,
1996, approximately $16,300 was outstanding, all of which was received as
of August 2, 1996. For the six months ended June 30, 1995, the Partnership
was obligated to reimburse Arvida/JMB-I approximately $1,403,000 and the
Partnership was entitled to receive reimbursements from Arvida/JMB-I of
approximately $97,300.
Arvida Company ("Arvida"), pursuant to an agreement with the
Partnership, provides development, construction, management and other
personnel and services to the Partnership for all of its projects and
operations. Pursuant to such agreement, the Partnership reimburses Arvida
for all of its salary and salary-related costs incurred in connection with
work performed on behalf of the Partnership. The total of such costs for
the six month periods ended June 30, 1996 and 1995 were approximately
$157,000 and $506,600 respectively, all of which were paid as of August 2,
1996.
Pursuant to a requirement under the Partnership's credit facilities, a
portion of the reimbursements paid to Arvida and Arvida/JMB-I as well as
portions of the Partnership's insurance and loan refinancing costs incurred
in 1992 and 1993, have been funded on the Partnership's behalf by advances
from the General Partner. Such advances, which do not bear interest,
totalled approximately $4,609,400 at June 30, 1996. The repayment of such
advances is subordinated to the receipt by the Holders of Interests of
certain levels of return, and therefore is not expected to be made. In
addition, the Partnership was entitled to receive approximately $12,900
from an affiliate of the General Partner for salary and salary-related
costs incurred by the Partnership on behalf of such affiliate of the
General Partner, all of which was outstanding as of June 30, 1996 and
August 2, 1996.
The Partnership incurs certain general and administrative expenses,
including insurance premiums, which are paid by the Partnership on behalf
of its affiliated homeowners associations. The Partnership receives
reimbursements from the affiliates for such costs. For the six month
period ended June 30, 1996, the Partnership was entitled to receive
approximately $3,900 from such affiliates. At June 30, 1996, approximately
$2,300 was owed to the Partnership, none of which was received as of August
2, 1996. For the six months ended June 30, 1995, the Partnership was
entitled to receive approximately $13,700 from such affiliates.
Arvida provides development management services to the Heathrow
partnership. For the six months ended June 30, 1996, management fees of
approximately $212,200 had been incurred, the payment of which has been
deferred. The cumulative amount of such deferred management fees as of
June 30, 1996 was approximately $3,005,200. Such deferred fees do not bear
interest and remain payable. The ultimate payment of these management fees
is not expected to be made as it is subordinated to certain levels of
return to the Holders of Interests.
In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partner have deferred a portion of their distributions of
net cash flow from the Partnership totalling approximately $247,000. This
amount, which does not bear interest, is not expected to be paid.
COMMITMENTS AND CONTINGENCIES
As security for performance of certain development obligations,
including the Partnership's obligations with respect to the Santa Margarita
Water District, the Partnership is contingently liable under standby
letters of credit and bonds at June 30, 1996 for approximately $2,600,400
and $528,000, respectively.
The Partnership has been named a defendant in a lawsuit filed in the
Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County,
Florida entitled Land Investment I, Ltd., Heathrow Land & Development
Corporation, Heathrow Shopping Center Associates, and Paulucci Investments
v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida
Company and JMB Realty Corporation. The complaint, as amended, includes
counts for breach of the management agreement, breach of fiduciary duty,
fraud in the inducement and conspiracy to commit fraud in the inducement,
breach of the partnership agreement and rescission in connection with the
purchase and management of the Heathrow development. Plaintiffs seek,
among other things, unspecified compensatory damages, the right to add a
claim for punitive damages, rescission, attorneys fees, costs, and such
other relief as the Court deems appropriate. The Partnership believes that
the lawsuit is without merit and intends to vigorously defend itself in
this matter.
The Partnership has been advised by Merrill Lynch that various
investors of the Partnership have sought to compel Merrill Lynch to
arbitrate claims brought by certain investors of the Partnership, and has
been named as a respondent in various arbitrations, representing
approximately 11% of the total Interests outstanding. These claimants have
sought and are seeking to arbitrate claims involving unspecified damages
based on Merrill Lynch's alleged violations of applicable state and/or
federal securities laws and alleged violations of the rules of the National
Association of Securities Dealers, Inc., together with pendent state law
claims. The Partnership believes that Merrill Lynch has resolved some of
these claims through litigation and otherwise, and that Merrill Lynch is
defending other claims. Merrill Lynch has asked the Partnership and its
General Partner to confirm an obligation of the Partnership and its General
Partner to indemnify Merrill Lynch in these claims against all loss,
liability, claim, damage and expense, including without limitation
attorney's fees and expenses, under the terms of a certain Agency Agreement
dated October 23, 1989 ("Agency Agreement") with the Partnership relating
to the sale of Interests through Merrill Lynch on behalf of the
Partnership. The Agency Agreement generally provides that the Partnership
and its General Partner shall indemnify Merrill Lynch against losses
occasioned by an actual or alleged misstatement or omission of material
facts in the Partnership's offering material used in connection with the
sale of Interests and suffered by Merrill Lynch in performing its duties
under the Agency Agreement, under certain specified conditions. The Agency
Agreement also generally provides, under certain conditions, that Merrill
Lynch shall indemnify the Partnership and its General Partner for losses
suffered by the Partnership and occasioned by certain specified conduct by
Merrill Lynch in the course of Merrill Lynch's solicitation of
subscriptions for, and sale of, Interests. The Partnership is unable to
determine at this time the ultimate investment of investors who have filed
arbitration claims as to which Merrill Lynch might seek indemnification in
the future. At this time, and based upon the information presently
available about the arbitration statements of claims filed by some of these
investors, the Partnership and its General Partner believe that they have
meritorious defenses to demands for indemnification made by Merrill Lynch
and intend to vigorously pursue such defenses. Although there can be no
assurance regarding the outcome of the claims for indemnification, at this
time, based on information presently available about such arbitration
statements of claims, the Partnership and its General Partner do not
believe that the demands for indemnification by Merrill Lynch will have a
material adverse effect on the financial condition of the Partnership.
In addition, the Partnership could potentially be liable for certain
amounts incidental to other matters, the amount of which could be
substantial.
TAX-EXEMPT BOND FINANCING
In connection with the development of Talega, the Partnership has
utilized bond financing to construct certain on-site and off-site water and
sewer infrastructure improvements which the Partnership would otherwise be
obligated to finance and construct as a condition to obtain certain
approvals for the project. As of June 30, 1996, $59,645,000 of the bonds
were outstanding. Approximately $46.5 million of proceeds from the sale of
bonds was expended by the District on infrastructure improvements through
June 30, 1996.
ADJUSTMENTS
In the opinion of the General Partner, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been
made to the accompanying consolidated financial statements as of June 30,
1996 and December 31, 1995 and for the three and six month periods ended
June 30, 1996 and 1995 (assuming the Partnership continues as a going
concern).
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the notes to the accompanying consolidated
financial statements ("Notes") contained in this report for additional
information concerning certain of the Partnership's investments.
As discussed below, there is substantial doubt about the Partnership's
ability to continue as a going concern.
At June 30, 1996 and December 31, 1995, the Partnership had cash and
cash equivalents of approximately $483,400 and $1,387,300, respectively.
Bank overdrafts representing checks in transit of approximately $551,000 at
December 31, 1995, were repaid from cash on hand in January 1996.
Remaining cash and cash equivalents were available for working capital
requirements. The Partnership had suspended cash distributions to its
Partners in late 1990 due to, among other things, deteriorating market
conditions. The Partnership has been unable to reinstate distributions due
to its financial condition and the operations of its Properties, which are
also discussed more fully below. In addition, the Partnership is currently
in default of the terms of its credit facilities and a default has been
asserted concerning Tax-Exempt Bond Financing. The source of the
Partnership's liquidity is dependent upon its lender continuing to forbear
from exercising its remedies under the Partnership's credit facility
agreements and permitting the Partnership to use funds in a restricted cash
collateral account and certain sales proceeds to finance the Partnership's
limited operations, as more fully discussed in Part II - Item 3. (Defaults
on Senior Securities).
During June 1996, the Heathrow joint venture, in which the Partnership
is the managing general partner closed on the sale of the remaining land,
the country club and certain related assets within the Partnership's
Heathrow Community. This transaction is reflected in Land and property
operations on the accompanying Consolidated Statements of Operations. This
sale is the primary cause for various significant changes on the
accompanying Consolidated Balance Sheets at June 30, 1996 as compared to
December 31, 1995 and on the accompanying Consolidated Statements of
Operations for the three and six month periods ended June 30, 1996 as
compared to the same periods in 1995. The net proceeds from this sale,
after prorations and closing costs, of approximately $18.4 million were
paid to the Partnership's lender and applied against the outstanding
principal balances on both of the Partnership's term loans. The sale
resulted in a gain for financial reporting purposes and a loss for Federal
income tax purposes in 1996.
During March 1996, the Partnership reached an agreement with an
unaffiliated third party for the sale of the Talega Property. The contract
subsequently expired by its terms without the sale of the Property being
consummated. The Partnership continues to actively market the Property for
sale and is in various stages of negotiations with potential purchasers.
During April 1996, the Partnership entered into a non-binding letter
of intent with an unaffiliated third party for the sale of the retail
shopping plaza at its Heathrow Community. This letter of intent
subsequently terminated by its terms without the sale of the shopping plaza
being consummated. The Partnership continues to actively market this
Property for sale.
Although there can be no assurance, the Partnership currently expects
that it will be disposing of all of its remaining assets by December 31,
1996 in accordance with the plan which is currently being negotiated with
its lender. The Partnership's ability to dispose of all of its assets
during 1996 is dependent upon, among other things, the Partnership entering
into a contract for the sale of its Talega Property on terms acceptable to
its lender, and closing such sale by the end of the year. It is expected
that any proceeds from the sale or other disposition of such assets, in
excess of the costs of sale and general and administrative expenses
attributable thereto, will be paid to the lender or other creditors of the
Partnership. Upon completion of the sale of the Partnership's remaining
assets, the Partnership expects to terminate. The Limited Partners should
not expect to receive any future distributions from the Partnership.
The possibility still remains that the lender may pursue its remedies
under the credit facilities, including realizing upon substantially all of
the Partnership's remaining assets, which are collateral security for the
credit facilities. These issues raise substantial doubt about the
Partnership's ability to continue as a going concern. If the Partnership
is unable to continue as a going concern, it may be forced to dispose of
its Properties in a manner that would realize less than would be realized
under its current plan for an orderly disposition. If this were to occur,
any proceeds received could be less than the current carrying values of the
Properties, resulting in the recognition of additional losses by the
Partnership. The accompanying Consolidated Financial Statements do not
include any adjustments that might result from the outcome of this
uncertainty.
RESULTS OF OPERATIONS
Due to the Partnership's financial condition and the sale of the
remaining land, the country club and certain related assets within the
Partnership's Heathrow Community during June 1996, the results of
operations for the three and six months ended June 30, 1996 reflect the
limited activity of its remaining assets.
Housing revenues for the three and six months ended June 30, 1996 have
been negatively impacted by the prohibition placed on the Partnership by
its lender regarding the construction of new homes within Heathrow. All
construction of the homes for which the lender agreed to advance funds has
been completed. During the six months ended June 30, 1996, the Partnership
closed on one housing unit in its Heathrow Community. Due to the sale of
the Partnership's Heathrow Community, as discussed above, no units remain
in inventory as of June 30, 1996.
The decrease in homesite revenues for the three and six months ended
June 30, 1996 as compared to the same periods in 1995 is due to a decrease
in the availability of lots for sale at the Partnership's Heathrow and
Atlanta Communities. The Partnership generated homesite revenues for the
six months ended June 30, 1996 from 20 lot closings within the
Partnership's Heathrow and Atlanta Communities. Three lots remain unsold
at the Partnership's Eagle Watch Community, which is expected to close-out
in 1996. The decline in the gross operating profit margin for the three
and six months ended June 30, 1996 as compared to the same periods, in 1995
is due primarily to the reduction in the number of closings of higher
margin product at the Partnership's Heathrow Community.
Land and property revenues for the three and six months ended June 30,
1996 were generated from the sale of the remaining land, the country club
and certain related assets within the Partnership's Heathrow Community, as
discussed above.
Revenues from operating properties decreased for the three months
ended June 30, 1996 as compared to the same periods in 1995 due primarily
to the June 1996 sale of the country club within the Partnership's Heathrow
Community, as discussed above.
Brokerage revenues decreased for the three and six months ended June
30, 1996 as compared to the same periods in 1995 due primarily to the
reduction in the number of closings of homes built by unaffiliated third-
party builders within the Partnership's Heathrow and Atlanta Communities.
Selling, general and administrative expenses continued to decrease
during the three and six months ended June 30, 1996 as compared to the same
periods in 1995 due primarily to a reduction in marketing and
administrative costs incurred, which is a direct result of the restrictions
placed on development and construction by the Partnership's lender, and the
Partnership's current financial condition.
Interest and real estate taxes decreased for the three and six months
ended June 30, 1996 as compared to the same periods in 1995 due primarily
to a decrease in the average amount of borrowings outstanding during the
period.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership has been named a defendant in a lawsuit filed in the
Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County,
Florida entitled Land Investment I, Ltd., Heathrow Land & Development
Corporation, Heathrow Shopping Center Associates, and Paulucci Investments
v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida
Company and JMB Realty Corporation. The complaint, as amended, includes
counts for breach of the management agreement, breach of fiduciary duty,
fraud in the inducement and conspiracy to commit fraud in the inducement,
breach of the partnership agreement and rescission in connection with the
purchase and management of the Heathrow development. Plaintiffs seek,
among other things, unspecified compensatory damages, the right to add a
claim for punitive damages, rescission, attorneys fees, costs, and such
other relief as the Court deems appropriate. The Partnership believes that
the lawsuit is without merit and intends to vigorously defend itself in
this matter.
The Partnership is not subject to any other material pending legal
proceedings, other than ordinary litigation incidental to the business of
the Partnership. However, reference is made to Notes for a discussion of
certain claims asserted by Merrill Lynch for indemnification by the
Partnership and the General Partner in connection with claims for
arbitration filed by certain investors in the Partnership.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Partnership's $67.5 million term loan has a certain loan-to-value
covenant relative to the Partnership's Talega Property. Based upon an
independent appraisal of Talega which was prepared on behalf of the
Partnership's lender, the Partnership has not been in compliance with this
covenant. On March 4, 1994, pursuant to the terms of this loan-to-value
covenant, the Partnership received a notice of default from its lender.
The Partnership was required to make a term loan payment, including
accrued interest, of approximately $59 million in order to cure this
default. The Partnership did not have the funds to make such payment. In
addition, the Partnership's credit facilities matured on December 30, 1994.
However, the Partnership did not have the funds to pay off the balances
outstanding under the credit facilities. The Partnership has not made the
required interest payments on its credit facilities since September 1994.
The aggregate amount outstanding, including principal and all accrued and
unpaid interest, on the Partnership's term loans and revolving line of
credit at June 30, 1996 is approximately $111.2 million. In addition, as
of June 30, 1996, the Partnership is liable under standby letters of credit
for approximately $2,600,400. To date, the Partnership's lender has not
pursued all of its remedies under the credit facility agreements relative
to these defaults, which could include, among other things, the lender
realizing upon its security interest in the Partnership's Properties. In
March 1995, the Partnership and its lender entered into Forbearance
Agreements pursuant to which, among other things, $3 million was deposited
in a restricted collateral account to pay direct operational costs and
general and administrative expenses of the Partnership's limited
operations, subject to the approval of the lender of such costs and
expenses and its continued forbearance from the exercise of its other
remedies under the credit facility agreements. The Forbearance Agreement
was modified on October 31, 1995 and the Partnership is currently operating
under a plan currently being negotiated to dispose of its remaining assets
by December 31, 1996. It is expected that any proceeds from the sale or
other disposition of such assets, in excess of the costs and general and
administrative expenses attributable thereto, will be paid to the lender or
other creditors of the Partnership. Reference is made to Part I. Financial
Information, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for a further discussion of the
Partnership's liquidity and capital resources.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Amended and Restated Agreement of Limited Partnership
incorporated herein by reference.*
4.1. Assignment Agreement by and among the Partnership, the General
Partner, the Initial Limited Partner and the Holders of Interests
incorporated herein by reference.*
4.2. $225 million Credit Agreement dated April 15, 1990 between
Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of America
National Trust and Savings Association is incorporated herein by
reference.**
4.3. Amended and Restated Credit Agreement dated June 23, 1992
between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of
America National Trust and Savings Association is incorporated herein by
reference.**
4.4. Various mortgages and other security interests dated April 30,
1992 related to Arvida/JMB Partners, L.P.-II's Heathrow, Talega, Wesmere,
Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and SouthRidge Lakes
properties which secure loans under the Amended and Restated Credit
Agreement referred to in Exhibit 4.3 are incorporated herein by
reference.**
4.5. Revolving Loan and Letter of Credit Facility Credit Agreement
dated June 23, 1992 between Arvida/JMB Partners, L.P.-II and Continental
Bank N.A. and Bank of America National Trust and Savings Association is
incorporated herein by reference.**
4.6. Various mortgages and other security interests dated June 23,
1992 related to Arvida/JMB Partners, L.P.-II's Heathrow, Talega, Wesmere,
Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and SouthRidge Lakes
properties which secure loans under the Revolving Loan and Letter of Credit
Facility Credit Agreement referred to in Exhibit 4.5 are incorporated
herein by reference.**
4.7. Interim Bank Letter Agreement dated March 25, 1992 between
Arvida/JMB Partners, L.P.-II and Continental Bank N.A., Bank of America
National Trust and Savings Association, and Unibank is incorporated herein
by reference.**
4.8. Promissory Note effective July 1, 1992 between Arvida/JMB
Partners, L.P.-II and Arvida/JMB Managers-II, Inc. is herein incorporated
by reference. ****
4.9. Letter dated September 20, 1994 from the Partnership to Bank
of America regarding the Partnership's acknowledgement that all proceeds
from the sale of Collateral shall be delivered immediately to Co-Lenders is
herein incorporated by reference to Exhibit 4.9 to the Partnership's Report
on Form 10-Q (File No. 0-19245) filed on November 11, 1994.
4.10. Forbearance and Modification Agreement (Credit Agreement)
dated March 21, 1995 by and among Arvida/JMB Partners, L.P.-II, Heathrow
Development Associates, Ltd., Eagle Watch Partners, Bank of America
Illinois and Bank of America National Trust and Savings Association is
incorporated herein by reference. *****
4.11. Forbearance and Modification Agreement (Amended and Restated
Credit Agreement) dated March 21, 1995 by and among Arvida/JMB Partners,
L.P.-II, Heathrow Development Associates, Ltd., Eagle Watch Partners, Bank
of America Illinois and Bank of America National Trust and Savings
Association is incorporated herein by reference. *****
4.12. Letter Agreement dated October 31, 1995 supplementing
Forbearance Agreements with Lenders is herein incorporated by
reference.******
10.1. Management, Advisory and Supervisory Agreement between the
Partnership and Arvida Company is herein incorporated by reference.**
10.2. Revolving Credit Agreement dated September 27, 1989 between
Arvida/JMB Partners, L.P.-II and Continental Bank N.A. is incorporated
herein by reference.***
10.3. First Amendment Credit Agreement dated December 21, 1989 to
the Credit Agreement dated May 5, 1989 between Arvida/JMB Partners, L.P.-II
and Continental Bank N.A. is incorporated herein by reference.***
10.4. Second Amendment Credit Agreement dated January 31, 1990 to
the Credit Agreement dated May 5, 1989 between Arvida/JMB Partners, L.P.-II
and Continental N.A. is incorporated herein by reference.***
10.5. Credit Agreement dated May 5, 1989 between Arvida Talega
Limited Partnership and Continental Bank N.A. is incorporated herein by
reference.***
10.6. First Amendment Credit Agreement dated December 21, 1989 to
the Revolving Credit Agreement dated September 27, 1989 between Arvida/JMB
Partners, L.P.-II and Continental Bank N.A. is incorporated herein by
reference.***
10.7. First Amended and Restated Limited Partnership Agreement of
Heathrow Development Associates, Ltd. and Assignment of Partnership
Interests dated January 17, 1990 are herein incorporated by reference.**
10.8. Amended and Restated Heathrow Management Agreement dated
January 17, 1990 is herein incorporated by reference.**
10.9. Eagle Watch Partners General Partnership Agreement dated
December 27, 1989 is herein incorporated by reference.**
10.10. Letter of Credit Agreement dated July 27, 1990 between
Arvida/JMB Partners, L.P.-II and Santa Margarita Water District regarding
collateral for Tax-Exempt Bond Financing is herein incorporated by
reference.**
10.11. Agreement for the Payment of the Diemer Intertie Sublease
Payments, Principal and Interest of Bonds of Improvement District No. 7 and
Annual Budget Deficits Between Arvida/JMB Partners, L.P.-II and Santa
Margarita Water District dated January 15, 1990 is herein incorporated by
reference.*
10.12. Sale and Purchase Agreement dated August 3, 1993 by and
between EW Golf Club, L.P., Eagle Watch Partners and Cloverleaf
Investments, Inc. for the sale of the club facilities and other assets of
the Eagle Watch Golf Club is herein incorporated by reference.****
10.13. Stipulation and Settlement dated October 19, 1993 and Final
Judgement and Order dated March 31, 1994 pertaining to the class action
lawsuit is incorporated herein by reference.****
10.14. Agreement for Purchase and Sale dated August 14, 1995 by and
between Arvida/JMB Partners, L.P.-II and Heritage Development South, Inc.
for the sale of certain real property within the Wesmere Community is
incorporated herein by reference.******
10.15. Agreement for Sale and Purchase of Real Property dated March
22, 1996 among Heathrow Development Associates, Ltd., Heathrow Cable
Limited Partnership and Associates and Country Club, L.P. and 4/46A
Corporation for the sale of the remaining land and certain related assets
within the Heathrow Community is incorporated herein by reference to
Exhibit 10.15 to the Partnership's report for March 31, 1996 on Form 10-Q
(File No. 0-19245) filed with the Securities and Exchange Commission dated
May 10, 1996.
* Previously filed with the Securities and Exchange Commission as
Exhibit 3., 4.1 and 10.11 to the Partnership's Form 10-K (File No. 0-19245)
filed on April 12, 1993 and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as
Exhibits 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 10.1, 10.7, 10.8, 10.9 and 10.10,
respectively, to the Partnership's Form 10-K Report (File No. 0-19245)
filed on April 13, 1992 and are herein incorporated by reference.
*** Previously filed with the Securities and Exchange Commission as
Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6 to the Partnership's Form 10-K
Report (File No. 0-19245) under the Securities Act of 1934 filed on March
28, 1990 and incorporated herein by reference.
**** Previously filed with the Securities and Exchange Commission as
Exhibits 4.8, 10.12 and 10.13, respectively, to the Partnership's Form 10-K
(File No. 0-19245) filed on April 13, 1994 and incorporated herein by
reference.
***** Previously filed with the Securities and Exchange Commission as
Exhibits 4.9 and 4.10, respectively, to the Partnership's Form 10-Q (File
No. 0-19245) filed on November 9, 1995 and incorporated herein by
reference.
****** Previously filed with the Securities and Exchange Commission as
Exhibits 4.12, 10.14 and 10.15, respectively, to the Partnership's Form 10-
K Report (File No. 0-19245) under the Securities Act of 1934 filed on March
25, 1996 and incorporated herein by reference.
(b) The following report on Form 8-K was filed since the beginning
of the period covered by this report.
The Partnership's report dated July 1, 1996 describing
the sale of the remaining land and certain related assets within the
Heathrow Community.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
ARVIDA/JMB PARTNERS, L.P.-II
BY: Arvida/JMB Managers-II, Inc.
(The General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Vice President
Date: August 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: August 9, 1996
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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<RECEIVABLES> 434,070
<ALLOWANCES> 51,166
<INVENTORY> 50,354
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<PP&E> 2,623,668
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<OTHER-SE> (129,717,671)
<TOTAL-LIABILITY-AND-EQUITY> 5,937,786
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<CGS> 18,720,908
<TOTAL-COSTS> 18,720,908
<OTHER-EXPENSES> 11,097,559
<LOSS-PROVISION> 0
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